The Financial Intelligence Authority-FIA working with Uganda Revenue Authority (URA) and other stakeholders, has outted the first ever Tax Crimes and Proceeds Risk Assessment report 2024 in which it is indicated that whereas Uganda has a strong and robust tax regime, it still faces challenges at operational level.
The report shows that tax crimes (evasion) are on the rise, making them the second leading generators of illegal proceeds for money laundering after corruption.
The report covers a period between 2017-2022 wherein it is indicated that the major hurdles to Uganda’s tax regime are trade-based and they include smuggling of goods and services, under valuation of goods and services, mis-declaration and concealment, non-filing of returns, under reporting, non-payment of assessed taxes and other payroll and VAT.
“From the assessment of Uganda’s domestic tax threats, VAT was leading tax crimes category by order of magnitude. It is followed by Corporate Income Tax, Payroll Tax and Personal Income Tax respectively. Therefore, there’s need for increased capacity of our agencies to trace and investigate money laundering linked to tax crime and to increase interagency cooperation and international collaboration in dealing with the identified risks” the report launched by state minister for finance Henry Musasizi at Sheraton hotel says.
The report however, indicates that the country’s tax system is comprehensive as it requires natural and legal persons to provide information about their income and assets during the tax year. Because of this, tax compliance has relatively improved and there’s also an increase in tax payer register from 1,024,483 tax payers in 2016/7 to 1,590,241 taxpayers in 2019/20.
However, even as the numbers on tax register have increased, tax to GDP has stagnated at 13% during the assessment period.
The report notes that fiscal deficit and indebtedness of the country is as a result of low tax base and noncompliance by some taxpayers leading to low tax collections.
“The threat analysis indicated that at domestic level, the tax crimes threat is high. This rating considered the assessment of various tax evasion schemes, enforcement data and offences including smuggling, obstruction, non-filling, non-filing, fraudulent schemes, inaccurate record keeping, falsehoods and other tax crimes that generate proceeds for money laundering and criminal enrichment” it says, adding that the major drivers of Uganda’s tax vulnerability are weaknesses in tax enforcement by URA and administration of tax evasion penalities to enhance compliance.
“There are still gaps in transfer pricing issues, offshore tax schemes, trade-based money laundering, timely exchange of information with government agencies to enhance identification of tax evasion schemes and concealment of proceeds to effectively combat tax crimes and related money laundering” it says.
The report shows that between 2017 and 2020, a total of 31689 tax related cases were probed of which 233 were prosecuted with 168 convictions against 176 individuals. In the same period, about Shs255bn of evaded tax was recovered by URA while FIA forwarded 41 inteligence reports involving tax fraud in URA for investigation.
“These cases are still at various levels in the court and as a result, no successful Money Laundering investigation related to tax crime has been registered. There’s an urgent need to pursue money laundering investigations alongside tax crimes investigations to trace related proceeds, enforce recoveries and strengthen tax enforcement actions” it says.
Officiating at the launch, minister Musasizi noted that Money Laundering affects Foreign Direct Investment as investors can’t have the confidence to bring in their money if the financial safety standards are lacking. He asked every entity and officers involved to do their work.
“Several studies have shown that tax crimes and money laundering if widespread, are costly to the economy. They are harmful to government and society. They affect government’s ability to deliver services like health, education and infrastructure. By evading taxes, you’re depriving government of resources” he said.
Musasizi encouraged everyone to prioritize recommendations in this report and act on them accordingly.
FIA Executive Director Samuel Were Wandera, noted that lack of parallel investigations incorporating the offense of money laundering in tax crimes investigations makes Uganda’s tax regime vulnerable. He urged URA to include this offense of money laundering in tax investigations with a view of tracing, identifying and recovering the loot, begining with VAT related crimes that are the highest in magnitude.
He also called for strengthening of enforcement mechanisms to answer the challenge of low levels of tax compliance.
“URA should (within six months), design tools to track tax arrears and other methods used by criminals to evade tax payment. We also need within one year to develop a broad based tax policy to include the informal sector and provide for collection of non-tax revenue. Such businesses can easily evade taxes and this is an enabling environment for money laundering” he said.
In another development, URA head-legal Catherine Kyokunda who represented Commissioner General John Musinguzi Rujoki, urged government to consider the findings of this report to further strengthen tax compliance and increase revenue. She described the assessment as timely for URA to strengthen on the tax regime so that there’s a deterrence for those who want to exploit those gaps.
