Govt targets landlords, banks in new tax hunt

People queue at Uganda Revenue Authority offices in Kampala. The Finance ministry has tasked Uganda Revenue Authority’s top leadership to provide emergency solutions to stem worsening revenue shortfalls and high staff attrition. Photo/File

What you need to know:

  • Finance ministry PS Ramathan Ggoobi writes to Uganda Revenue Authority, demanding answers on, among others, specifics of deductions and expenses claimed by multinational companies as “others”, which is their biggest booked expense.

The Finance ministry has tasked Uganda Revenue Authority’s top leadership to provide emergency solutions to stem worsening revenue shortfalls and high staff attrition.
In a December 7 letter to Mr John Musinguzi, the URA commissioner general, Permanent Secretary Ramathan Ggoobi red flagged Shs600b deficit in revenue collection between July and October, the first four months of the 2023/2024 financial year.

“From our modelling, the shortfall is projected to reach one trillion shillings by end of this financial year unless comprehensive measures are taken to close this gap,” the PS wrote.

He added: “As you are aware, this revenue shortfall is likely to cause a lot of budget financing constraints to the entire government and service delivery to the citizens.”

What you need to know about tax amnesty
Mr Ggoobi did not specify the areas to be affected in the budget, which is already burdened with Shs3.5 trillion supplementary allocation that Parliament approved on December 7. 

The warning on below-target cash inflows into the national coffers contrasts with the government’s commitment to collect Shs29.7 trillion, which is Shs4 trillion higher than for the previous financial year.
Bureaucrats hoped an increased revenue mobilisation would clothe the financing gaps caused by World Bank’s freeze of new lending to Uganda over the May enactment of the Anti-Homosexuality Act.

The constitutionality of the law, which the Bretton Woods institution says violates fundamental human rights at the heart of its values, is being challenged in the Constitutional Court, and hearing of the consolidated petitions starts in Kampala today.  
In his letter titled Revenue Performance for Financial Year (FY) 2023/2024, PS Ggoobi, who is also the secretary to the Treasury, drew the attention of URA to three possible areas of revenue leaks, which he asked the tax collector to investigate.

These include deductions and expenses claimed by multinational companies as “others”, practices by commercial banks to transfer and allow expenses incurred on treasury bills account to the general operating side and tax evaders hiding under the cloak of informality.

“… URA needs to scrutinise the rental income tax regime and collections so as to establish linkages between business income, employment income and the likely source of funds to put up rental structures,” the PS noted.

Government misses its revenue target by Shs180 billion
In a study titled, Assessment of the Drivers of the Shadow economy in Uganda, researcher Ismail Kintu found evidence, corroborating the Ministry of Finance concern raised in its December 7 letter, that formal and professional entities hide investments in the informal economy where they are able to continue earning taxable income while hiding way from the taxman’s binoculars.  

Citing commercial banks’ practices on booking treasury bills expenses, the PS noted that “URA should … be disallowing these expenses since treasury bills are faced with final Withholding Tax (WHT) and, thus, the expenses incurred on them are not deductible”.

We were unable to speak to the tax body for this article, but its officials are expected in meetings planned for tomorrow and Wednesday to present “administrative interventions” required by Finance, the parent ministry to URA, to address the revenue deficits and high staff turnover. 
Up to 52 of its employees have left between July 1 and September, the first quarter of this financial year, according to the tax body’s October briefing to supervisors at the Finance ministry, which also highlighted the revenue deficit.  

The less-than-satisfactory tax collection performance is an anticlimax for URA which last financial year posted Shs57b surplus, its first after Shs3.5t cumulative under-collections over three years. 
As a result, the government announced a raft of measures, among them, use of ICT to fight tax evasion, rationalising tax exemptions and reducing revenue leakages in order to improve tax administration, catch dodgy tax payers and fight internal corruption. 

According to the 2023/2024 budget speech, the interventions would help widen the tax base, enabling higher revenue collections.  
URA currently collects just about 13.5 percent of tax relative to the Gross Domestic Product (GDP), which is the total volume of Uganda’s wealth, compared to the 18 percent average collections by regional peers; Kenya, Tanzania and Rwanda. 

Details contained in the Domestic Revenue Mobilisation Strategy show that Uganda government intends over the next five years to increase its tax to GDP ratio to between 16 percent and 18 percent, up from the current 13.5 percent.  
PS Ggoobi in his December 7 letter, seen by this publication, asked URA Commissioner General Musinguzi to task multinational companies to explain what constitutes the “others” in their deductions and expenses claims.
“This is because the ‘others’ expenses constitute the biggest percentage of expense category,” he noted.

The government’s concerns about multinationals using creative accounting and legal means to pay less than due taxes are not new.
A study by URA itself, and another by the High-Level Panel on Illicit Financial Flows led by former South African President Thabo Mbeki, listed multinationals among the biggest players perpetuating illicit financial flows, including through aggressive tax planning.