IFFs are a universal problem that manifests broadly as movement of money (and value) that is illegally earned, acquired, transferred, or utilized from one country to another.
URA cracks down on illicit financial flows to curb revenue leakages
Uganda Revenue Authority (URA) is intensifying efforts to curb Illicit Financial Flows (IFFs) to curb revenue leakages, following policy recommendations in the Global Financial Integrity (GFI) reports for 2008, 2014 and 2018.
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According to Advocates Coalition for Development and Environment (ACODE) and Global Financial Integrity (GFI), IFFs in Uganda include, corruption, money laundering, smuggling of cash and counterfeiting, among others. The two organizations estimate the loss due to IFFs to be in excess of UGX 2 trillion annually.
Trade mis-invoicing is believed to be the most significant. Trade mis-invoicing refers to a practice by importers and exporters who deliberately falsify the declared value of goods on the invoices they submit to their customs authorities, largely for tax evasion purposes.
URA is working with Inter-Institutional technical committees of Law Enforcement Agencies and treaty partners around the world to share its information and enforce domestic tax laws and policies so that taxpayers pay their dues from businesses.
URA Commissioner General, Mr. John R. Musinguzi noted that tax transparency and Exchange of Information (EOI) have been adopted as strategic interventions for taxpayer compliance and revenue in the Uganda’s National Development Plan, the National Domestic Resource Mobilisation (DRM) Strategy, and the five-year URA Corporate Plan 2020/21-2024/25.
Mr. Musinguzi added that the return on investment from exchange of information for tax purposes is one of the key components of Uganda’s domestic resource mobilisation strategy that will improve the compliance management of Multinational Enterprises and individuals, including High Net-Worth Individuals.
In addition, URA is equipping customs with up-to-date trade pricing databases to facilitate risk management of the potential for trade mis-invoicing, amending laws to make mis-invoicing illegal, strengthening transfer pricing units within the organization, fostering transparency and tighter oversight of international banks and offshore financial centres that absorb the IFFs, and establishing multi-agency teams to address customs fraud, tax evasion and other financial crimes.
In September 2018, the Global Financial Integrity report revealed that trade mis-invoicing amounted to roughly 18% of total Ugandan trade from 2006-2015. Essentially, the potential over and under invoicing of imports from 2006-2015 was approximately US$4.9 billion whereas mis-invoicing of exports was about US$1.7 billion.
Consequently, under-valuation for imports was most evident for worn clothing, salt, stone and cement, chemical products and pharmaceuticals whereas over-valuation of imports was most significant for cereals, vehicles, electrical machinery, plastics, and iron and steel articles.
Furthermore, for trade mis-invoicing in exports, under-valuation was most critical for miscellaneous grains, seeds and fruits, cocoa, coffee, tea and spices, cereals and tobacco whereas over-valuation was substantial for iron and steel, fish crustaceans and related goods, iron and steel articles, and sugars.
To make trade mis-invoicing illegal, Section 65(6) of the VAT Cap 349, Section 15A (6) of the Excise Duty Act 2014 and Section 50 of the Tax Procedures Code Act (TPCA) 2014 impose Penal Taxes for making false and misleading statements.
Furthermore, in the TPCA amendments for the financial year 2022/23, the penalty for making false or misleading statements was increased from UGX 4M to UGX 110M as a deterrent measure to improve voluntary compliance.
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