KAMPALA —Despite adopting measures to combat Illicit Financial Flows (IFFs), Uganda loses an estimated UGX. 2 trillion annually in revenue to trade-based money laundering (TBML), a deprivation of the country’s much-needed tax revenues.
However, trade mis-invoicing is the most significant in the country. 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
The vice has adverse effects on economies and societies as it perpetuates criminal activities such as illicit wildlife trade, bribery, corruption, and tax evasion, economists said at a national dialogue held in Kampala on Thursday.
Juliana Kaggwa, the Corporate Relations Director at Uganda Breweries Limited (UBL) said illicit alcohol space has been growing at 9% for the last five years.
She says that 65% of alcohol produced in Uganda is unregistered and does not pay tax.
“Only 35% of us are paying the taxes. It is alarming; we are leaving money on the table. We are risking the lives of young people”.
PSFU Executive Director, Stephen Asiimwe said illicit trade results in revenue losses and that it uses a variety of methods such as misrepresenting the value of a transaction on an invoice to illegally transfer value across borders.
Other methods include falsely describing a product, intending to misrepresent the quality, type of goods or services in order to manipulate the transaction value.
Mr. Assimwe said perpetrators also issue multiple invoices for the same trade transaction as well as creating a mismatch in the quantity of invoiced goods versus the amount of the actual shipped goods.
It also incorporates the use of the informal value transfer system, that is transferring value between two jurisdictions without the actual movement of funds such as sending remittances at a reduced cost or for settling accounts across international borders.
He urged enforcement agencies including Uganda Revenue Authority and Uganda National Bureau of Standards to play a lead role.
“Spirited fight against illicit products must be a collaborative effort between all stakeholders. If the people lose faith in the powers that fight counterfeits, then the battle against counterfeits is lost before it even starts,” he said adding that:
“It chokes off market growth, sabotages global supply chains, squanders natural resources and endangers market security.”
Sam Watasa, the Chair, PSFU Trade Core Team, however, says that everything is in place to stop illicit trading. He notes that what is lacking is coordination and implementation.
Dr Julius Byaruhanga the director PSFU, urged government to conduct a nationwide baseline survey on the magnitude of illicit trade in Uganda.
Mr. Sam Watasa, the Chair, PSFU Trade Core Team efforts are being put together to address the challenge.
The State Minister for Trade David Bahati said the government is equipping URA’s 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.
He admitted that coordination and implementation remain a challenge but noted that UNBS needs resources to solve the problem of enforcement.
He appealed to stakeholders to give information to Uganda Revenue Authority (URA) for purposes of enforcement.
He said that the government through the URA has taken tremendous steps to curb smuggling countrywide.
During the period of July to March of the FY 2021/22 over UGX 70.04 billion was recovered from 5,748 seizures ranging from textiles, contraband cosmetics, rice, and fuel among others. The deployment of various intelligence measures like informers deterred smugglers who sneak into the country through inconspicuous concealment ways such as us hidden compartments in passenger cars and cross-border buses, hiding goods under cement or coffee husks, to mention but a few.
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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