Misinvoicing in car business costing government billions

Friday October 23 2020
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A man sitting near one of the vehicles at Masaka car bond located along Masaka Kampala road in Masaka City. PHOTO/ MALIK FAHAD JJINGO

By Fahad Malik Jjingo

I recently talked to Livingstone Nviri, a car dealer in Masaka, he said the biggest challenge his business is currently facing is what he described as unfairly high taxes.

According to him, many vehicles are abandoned in bonds because of the high cost of taxes.

"I have to pay at least Shs15 million in taxes for a vehicle I bought at Shs 5 million. This is too much tax to handle for many dealers," he said.

Even when government introduced a system of levying taxes on the value of the car, it's still unfair and this leaves traders with no option but to under declare the value of the vehicle to reduce on the high Cost Insure and Freight (CIF).

"Many dealers are still importing old vehicles because the tax value on the new models is too high. This part of the reason we have many old cars stuck on the roads," he added.

It's against this background that a Kampala-based car dealers association that also has members across the country has appealed to government to revise exorbitant taxes on imported cars as a way to discourage trade misinvoicing.


 Francis Kanakulya, the Kampala Associated Car Dealers spokesperson, says although there was a slight reduction in car dealers involved in misinvoicing after the government introduced a system of levying taxes based on value guidelines instead of invoices for particular vehicles, the taxes are still high.

He said car dealers pay 105 percent of the car's value in taxes. These include environmental levy (50%), exercise duty, VAT, and Income tax (55%).

The association's concern comes after government increased taxes on imported cars in an effort to stimulate local car production.

Uganda has locally produced 2 vehicles (two electric buses) by Kiira Motor Corporation project. Uganda is also constructing an assembly plant in Jinja district and the plant is expected to be completed by June 2021.

In 2018 Government banned the importation of cars produced 15 years before, in an effort to curb pollution. But the demand for imported second-hand cars is still high.

In Uganda, more than 80 percent of all vehicles on the road are second-hand imports, according to US-based think tank Global Financial Integrity (GFI), which focuses on IFFs.

However, trade misinvoicing occurs when companies move money illicitly in or out of countries through the commercial trade system by falsifying the prices of goods on import or export invoices.

By fraudulently manipulating the price, quantity or quality of a good or service on an invoice submitted to customs, criminals can easily and quickly shift substantial sums of money across international borders, GFI states.

By under-reporting the value of goods, importers are able to immediately evade substantial customs duties or other taxes.

Trade misinvoicing is a major form of trade-related illicit financial flows (IFFs), resulting in a massive loss of tax revenues for developing country governments.

According to a report Scoping Study of Illicit Financial Flows Impacting Uganda published in 2018 by GFI Uganda in the past nine years has lost USD 3.58m in imported cars that are miss invoiced.

Records from Uganda Revenue Authority indicate that in 2019, a total of 42,681 motor units were imported and accounting for at least Shs28.5 trillion of tax collected.

The URA report indicates that Passenger Vehicles (PSV) took the largest share of the motor vehicle imports costing Shs693 Billion followed by vehicles that carry goods at Shs 501Billion.

Most of the PSV are imported from Japan, UK, South Africa, Germany, and India among other countries, according to GFI.

 Worse still, Abu Bakar Kayiwa, a car dealer in Masaka District and clearing agent at Mutukula border post thinks Uganda still loses a lot of money in profit expatriation since most of the players in the car business are foreign traders.

"These players don't need much capital to operate a car bond here.

What they only need is their presence in Uganda and companies in their home countries will just send them vehicles to sell and in the end, all profits are taken back. Consequently, some local dealers have to pull out of business or have to endure working in loses because of the high operational costs," Kayiwa added.

To this effect, the dealers want government to intervene and regulate importation business through licensing and also suggest that the biggest stakeholders should be Ugandans to reduce the flows of incomes out of the country.

An official at Southern and Eastern Africa Trade Information and Negotiations Institute (SEATINI) an NGO involved in advocating for tax justice in Uganda who asked not to be quoted since he is not authorized to speak to the media, said a lot of money is lost in double taxes.

 He cited that inspection fees worth USD300, is paid in countries where the vehicles are imported and they have to pay a similar fee when the vehicle enters Uganda which is unfair.           

This story was produced by Daily Monitor, as part of Wealth of Nations, a media skills development programme run by the Thomson Reuters Foundation in partnership with The African Centre for Media Excellence. The content is the sole responsibility of the author and the publisher.