What you need to know:
- The Shs24.2b tax assessment followed a review of Hima Cement’s transfer pricing compliance for the period between 2014 and 2018
Uganda Revenue Authority (URA) slapped Hima Cement with a tax bill of Shs24.2b over alleged irregularities related to intercompany transfer pricing.
Hima Cement, a report indicates, allegedly broke transfer pricing and price-setting regulations, which could have lowered its tax bill.
Thus, in a December 2022 tax assessment, URA found that Hima Cement had tax arrears amounting to Shs24b.
The details are contained in the 2022 annual financial filings of Bamburi Cement in Kenya, which is the parent company of Hima Cement.
In September 2020, the report indicates, URA started a review of Hima Cement’s transfer pricing compliance for the period between 2014 and 2018, which in December 2022, returned a corporation tax assessment of Shs15b and interest of Shs9.18b.
“The company [Hima Cement] objected to the raised assessments and submitted a detailed response to the objections team of URA . .. URA is required to review the objection application and communicate a decision within 90 days from the date of objection. The objection was submitted on February 10, 2023,” the report reads.
Transfer pricing is used by large businesses to move profits from parent companies to subsidiaries to ensure that funds are evenly distributed. However, this must be done fairly and in accordance with tax laws.
It was not immediately clear how Hima Cement failed to adhere to transfer pricing laws.
URA declined to comment on the specifics of the matter, with Mr Robert Wamala Lumanyika, the URA acting manager public and cooperate affairs, saying: “We apologise that we may not be able to provide you with responses to your inquiry. This is information between URA and the taxpayer and we are not at liberty to divulge it.”
Hima Cement, which operates three facilities in Uganda, did not respond to our questions, emailed at the request of Ms Caroline Kezaabu, the company’s public relations manager.
Hima operates an integrated plant in the western Uganda district of Kasese, a cement-grinding facility in Tororo, eastern Uganda and a blending station in the Namanve area.
The report also noted that Bamburi and Hima Cement’s sales declined leading to a 5 percent drop in Group revenues to Shs986.9b during the 12 months to December 2022.
This was due to an increase in the cost of energy and power, among them fuel, which is critical in logistics, manufacturing and distribution.
Fuel prices have remained volatile across East Africa due to disruptions in the supply chain.
“Operating profit dropped by 26 percent, following global price increases and transport cost hikes to accommodate fuel price increases, which in turn increased the distribution costs and resulted in an increase in spend on sales and marketing,” Bamburi said.
However, during the period Uganda’s cement market grew by 6 percent due to increase urbanisation and start of construction works on oil and gas projects.
Refocus to oil and gas supplies
Bamburi also indicated that going forward, it would focus its supply on key strategic projects, such as the oil sector and new East African markets.
“Bamburi Cement Group is optimistic about the growth of the cement sector within EAC and continues to reassert its presence in the market through innovation, the launch of new products and high-quality construction solutions to all segments,” the company said in a statement.