Tax fraud syndicate exposed as URA digs in

A graphic of how the tax evasion syndicate operates with collusion of some tax officials. (Click on image for larger view).

A syndicate of traders, middlemen and some URA staff has beaten the system and dodged tax payment over the last couple of years thus affecting the country’s revenue collections, our investigation now reveals.

The tax evasion has been mainly through falsification of documents especially of imported goods and under declaration of imports which is done hacking into URA’s data system. The syndicate involves middle men in Uganda and Kenya on one hand, and the revenue officials from the two countries on the other. Most times, according to our findings, imports that attract higher tax are falsified into items that attract less tax like raw materials. For instance, if one imports shoes, by the time the container arrives in Kampala, it will pay tax as calcium carbonate.

For vehicle imports, the fraudsters destroy the history of the car importation from Japan if it’s a car that attracts higher tax like Toyota Land cruisers. On arrival in Kampala, they register it as a smaller car. This means a car that was to pay Shs80m tax, only pays Shs7m.

How it works
When goods leave China, for instance, they are codenamed C63 by customs at Mombasa meaning they are on transit entry to Uganda, so Kenya treats them as exports thus no focus. From Mombasa, the goods are destined to either Malaba or Busia border posts. If the importer chooses to pay taxes at Malaba, so they can offload the goods and sell, they are coded IM4. Those on transit to Kampala for tax payment are coded IM8.

From Malaba to Kampala, URA processes a transit document called T1 which the track driver carries. And on arrival in Kampala, the goods go to any URA registered bonded warehouse.

From the warehouse, the goods are discharged electronically meaning that the owner can proceed to pay the taxes and later remove the goods. The tax is paid through green channel, yellow channel or red channel. If goods go through green channel it means the goods are not physically checked by URA officials because they are either raw materials that attract less tax or the importer has a good track record.

When its yellow, URA only verifies the documents or if the goods are to be physically checked, it would arise from what the documents say. Vehicles fall under this category.

If it’s red, it implies the goods are of higher risk and must be physically checked before the tax process is completed and goods released. Goods classified under higher risk include garments, spirits, cigarettes, hardware and electronics among others. Goods can also be declared of higher risks depending on their source or the nature of importer. They can also be put under red category if other agencies like security have interest. Pharmaceuticals and foods fall under this category.

Exploiting system
Aware that URA and Kenya Revenue Authority are connected to a digital data exchange that allows URA to access information declared in Kenya about goods destined to Uganda, the fraudsters went to work.

In some of the cases whose documents we have obtained copies, the importers would declare goods as shoes on arrival in Mombasa but by the time they arrive in Nairobi, the goods turned into Calcium carbonate originating from Kenya to Uganda. Goods from Kenya to Uganda do not attract import tax—only VAT of 18 per cent and withholding tax of 6 per cent.

For instance, in July last year, a Kampala based firm, Twesi Company Ltd, imported a container of shoes from Xuchang Foreign Trade Co Ltd in China. It was container No MSKU8726470 STC 912 with bags of ladies slippers. Kenyan authorities received the goods in Mombasa.

By the time the goods arrived in Nairobi, the goods with the same container number had become exports from Doricliff Prime Enterprises based in Nairobi. The consignee changed from Twesi Company to Mac Limited, also in Kampala. The description changes from ladies plastic slippers to 26 tonnes of calcium carbonate but the number of the container that arrived in Mombasa carrying shoes remained the same as the container that carried calcium carbonate to Kampala from Nairobi.

On arrival at the bond, sources in URA say the importer or agent colludes with either URA staff or the tax body’s former employees to hack into the system to register that the said goods have arrived in Kampala, therefore; tax payment starts. Once URA system captures the goods as having entered into the bond, the process of payment begins automatically. The importer then processed payment of tax for calcium carbonate when it’s the shoes that were imported.

URA swings into action.
Apparently, this fraud is done by the middleman without the knowledge of the importer. In Twezi’s case, for instance, his agent Igga Abdul Huudu, asked for taxes worth Shs23.3m to clear the shoes. On July 12, 2011, Mr Igga had already paid URA tax of Sh1.8m for “calcium carbonate” but on July 26, 2011, Twezi deposited Shs23.2m into Mr Igga’s account at Barclays Bank, Mbarara branch to clear tax for the “shoes”.

After noticing the anomaly, URA Custom’s officials tightened the clearing process. They impounded several trucks in Busitema last year forcing the drivers to go on strike alleging harassment. On further scrutiny, URA discovered that at least 113 shoe importers had been falsifying imports. This newspaper has a list of the affected importers. URA found that at least Sh2.8b in taxes had been lost and a further Shs2.5b in penalties.

The tax body then hired court brokers who raided premises to force the traders to pay up. But then politics kicked in with traders alleging that URA was meting harsh treatment against them. In the meetings that followed, minutes of which this newspaper has obtained, the traders named Mr Igga as having been falsifying imports without their knowledge.

Some agreed to pay up and URA has so far recovered Shs360m. Others are still paying. The traders under Kacita ask URA to release the seized consignments upon clearance of taxes. URA waived the penalties after Kacita pledged to sensitise the traders.

Igga arrested
Having been variously named by traders as a man who duped them, URA arrested Mr Igga. But in his statement, a copy of which we have obtained, Mr Igga spilled the beans.

“I am Igga Abdul Huudu. I am of sound mind and I would like to state categorically without any intimidation, coercion or promise that I am a clearing agent but without a registered company of my own-therefore I usually mediate between importers and clearing agents that have clearing companies.

“It was last year around September when businessmen and women approached me and told me that they had imported containers loaded with shoes from China but that the said containers had a lot of excess and that even the invoices they had, had higher value than they were willing to present to URA customs officers for tax assessment. They requested me to devise away whereby the said containers would go through URA customs officers without opening and verifying the goods,” reads the statement.

According to Igga, the importers connected him to a man in Nairobi who would get information to be reflected on forged documents from Nairobi. He admits coordinating with other people at the border and also getting money from the traders to facilitate the process.

“However, one time, one of these containers was intercepted by a customs officer at Malaba. The customs officer asked why the container has a shipper’s seal yet it was for export from Kenya. However, Edison (other names withheld), gave the customs officer Shs6m and he left the consignment to go,” Mr Igga’s statement reads.

Tax evasion
“I would like to clarify that a container of shoes was supposed to formally pay taxes of between Shs40m to Shs60m but none of these importers ever paid that money for a container of shoes. They used to give me between Shs15m and Shs20m.” Out of this, Mr Igga would also pay taxes worth Shs2m or less.

The traders who used to bay for Mr Igga’s blood during meetings with URA, have since the man’s arrest refused to bare witness against him, forcing police to release the man on police bond.

When contacted, URA Commissioner for Customs Richard Kamajugo corroborated our account saying: “We agreed with Kacita that let the consignees only pay tax and leave out the penalties. The traders had politicised the whole issue and wanted to paint a picture that URA was harassing them.”

Mr Kamajugo added: “Some people have imported sophisticated systems to hack into the URA system and this makes our work harder.”

Asked about the collusion between traders and some URA staff, Mr Kamajugo said Kacita has declined to reveal any official they suspect.

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