What you need to know:
- Tax scam is increasingly becoming a routine fixture as several businesses opt for evasion instead of compliance. In an interview, Commissioner Tax Investigation at Uganda Revenue Authority (URA), Mr Denis Kugonza Kateeba, explains to Prosper Magazine’s Ismail Musa Ladu, why Value Added Tax (VAT) fraud is a risky business.
Following the digital rush by businesses into e-commerce occasioned by Covid-19 and the anticipation of vibrancy of the economy since its re-opening, we explain the merchant code which is issued by telecoms and how businesses can benefit from it.
1. What do you bring to the table?
The Tax investigations department aims at supporting domestic revenue resource mobilisation. We do this through combating tax evasion schemes, countering illicit financial flows and disrupting financial schemes. We maintain the integrity of the tax system which improves voluntary compliance. As a result, we contribute towards closing the revenue gap. We also build a case for prosecution where we ensure that tax offenders are held liable. But before that, we must be armed with robust evidence to support prosecution.
2. How rampant is tax fraud in the country?
The threat is viable. For example, the VAT scam technically known as missing trader, a kind of fraud perpetuated by mainly companies or entities, now merits attention. This kind of fraud involves formation of companies that in the real sense of the word have no visible or tangible business except fraudulently issuing invoices to reduce the VAT tax liability.
Ofcourse some businesses can be real and indeed render services that attract VAT charge, but they don’t have expenses that will warrant input VAT. So they end up using fictitious invoices to reduce their tax liability. Lately, we have been combating this kind of scam and we have secured some convictions against some perpetuators of this scam.
Then there is the falsification or adjustment of invoices. This normally happens at the customs. Most of the time, invoices are adjusted downwards and that causes revenue loss. We are paying lot of attention here with an intention to crack if not eliminate this scam.
3. There should be some kind of collusion going on otherwise this shouldn’t be such problem. What’s really happening?
Currently, we are on high alert and any of our staff found in one way of the other to be involve in this scam, will face the consequences. Right now, there is no evidence to suggest that URA officials are involved. But should there be some evidence linking our staff to this fraud—the law will take its course. This scam is done in such a smart way that you cannot tell whether the invoices are forged or not. But we are looking at all possible ways of verification especially from the source—where it is generated, and in real time. This will be through technology. Discussions in this regard are already underway.
4. Which economic sectors are prone to this kind of tax scam?
This is a big problem in the cash economy like ours where records and book keeping is not part of the transactions. Generally services, wholesale, trade and construction (including rental) sectors are the most problematic. Then there is also the media, advertising and transport industries among other sectors. We are now engaging landlords, especially for commercial buildings. We want them to keep records and prepare their accounts properly. After that we shall engage them about their tax obligations as well.
5. Which category in the taxpayers’ pyramid are the biggest tax evaders?
Although the risk is across the tax pyramid, our focus is on the apex which comprises of those who have deliberately refused to comply and the likes that are orchestrating fraud. We are looking at pushing them downwards into voluntary compliance. We have been focusing mainly on VAT tax fraud and custom. But there has also been substantial abuse of income tax, both the corporation tax and Pay As You Earn (PAYE). This is done through sales suppression.
6. In terms of deterrence measures, how capable are you?
Enforcement will always be our last resort. Our preferred mode of engagement is dialogue. We will do everything possible to exhaust this line before we switch to the next course of action because we are facilitators of business before anything else. That said, we have laws that provide for prison sentences and penalties. Tax crimes can land you up to anything between three to 10 years in prison. Then there are also penalties which include fines, and these attract compounding interests. We realised that our laws are not punitive enough. As a result, we are trying to make amendments to ensure that it is deterrent enough in terms of penalties.
I advise taxpayers that the responsibilities of their business is solely in their hands including the tax liability. So, if the security of your tax identification number (TIN) is breached in this case used by somebody else to commit fraud or related offences, it is you the owner of the TIN that will be held .
Business owners should take personal responsibility of their business. They shouldn’t just be delegating. You must know what your accountants is doing or what the consultant is up to because you the owner will be held accountable for whatever transpired. You may not be as competent enough to know all the processes involved in your business, but at least you need to take interest in the basics. For example, if your turnover is about Shs20 million and you have input of up to say Shs100 million, then just know something is amiss. If need be, get an independent person to review what the your in--house person has put together for quality assurance.
Business (taxpayers) should minimise use of cash transactions because it does not leave a trail that will come in handy when dealing with URA.
So transact through the banking system. This will help URA determine your tax liability correctly. For businesses that are still operated in manual mode, make sure you keep good records, it is important for proper assessment.
7. You talk of using systems such as Electronic Fiscal Receipting and Invoicing System (EFRIS) yet they can be an inconvenience—breaking down from time to time. How are you coping with this?
We have put up a dedicated 24/7 desk to solve all issues relating to our systems. We have consultants who are available to help you resolve whatever issue you are experiencing as soon as possible. We want to have as many people as possible embracing voluntary compliance. For this to work, our systems must be top-notch and efficient. The introduction of EFRIS and Digital Tax Stamps (DTS) is a step toward closing the tax leakage. With these systems in place, we can easily track the transactions.