On a damp Tuesday midmorning of October 27, 2020, the Uganda Revenue Authority (URA) enforcement team sitting at headquarters in Nakawa, Kampala, received a tip about a suspicious lorry travelling on the Gulu highway, likely heading to Kampala.
After back-and-forth consultations internally, a sentinel was dispatched to follow the truck from Karuma Town Council to wherever it was headed. The sentinel kept furnishing the team at headquarters with real-time information. They wanted to intercept the truck before it disappeared in the hustle and bustle of Wakiso-Kampala.
At around 4.30 pm, according to corroborated accounts, two enforcement officers tried to flag down the truck at Kawanda, Wakiso District. It had two occupants and government licence plates. The driver refused to stop and traffic officers at the Kawempe-Ttula-Mpererwe junction were told as much before they too witnessed the determination of the driver firsthand.
“The traffic officer stood in front of the road to stop the truck, but the driver drove on at speed, literally to mean that get out of the way or I run you over,” an enforcement officer, who was part of the operation, recalls.
The truck was eventually flagged down at around Hariss International Ltd factory in Kawempe. It is here that it was discovered that the occupants of the truck were UPDF soldiers. They carried AK47 rifles too.
“They said that they refused to stop because they were running low on fuel. They insisted that the truck be allowed to drive to Shell-Bwaise where it was scheduled to refuel,” the officer noted.
The seven-strong enforcement team that included three soldiers were in the process of escorting the truck to the forecourt when phone calls started. In no time, a group of five army officers arrived at Bwaise. Their pleas that the truck not be taken to Nakawa—the seat of URA—were met with conflicting orders from other heavyweights.
“What we didn’t recognise immediately is that they were actually buying time for the truck to be escorted to Nakawa at night,” another enforcement officer recounts. Upon arrival at Nakawa in pitch black—at around 8 pm—there were no off-loaders, which were picked from a warehouse in Kinawataka.
When the container was flung open, the enforcement team discovered hardwood timber. On closer inspection, it was discovered that beneath were boxes of contraband cigarettes. The contrabands were seized. Orders were passed on to release the truck and its occupants.
“Each time contrabands are impounded, there is usually a formal communication passed on,” a URA staff present that night told Saturday Monitor. “This time around it was at night, so we thought to ourselves we will start with the documentation the next day.”
Except, it was the last time the merchandise was seen.
One of the enforcement officers narrated that the contraband was moved from one warehouse location to another until it disappeared. After connecting the dots, it dawned on them that a senior army officer [names withheld] in the URA hierarchy had facilitated the contrabands to sip through.
URA’s assistant commissioner for public and corporate affairs, Mr Ibrahim Bbossa, did not respond to our repeated phone calls, email inquiries and text reminders. But, according to our investigations, the October 2020 incident is among a series of incidents where contrabands have been impounded and slipped through the system allegedly with the help of URA top managers.
Enforcement officers, who talked on condition of anonymity in order to speak freely, cited especially army officers implanted recently. What makes the mix more combustible is a climate of fear that includes threats, witch-hunting staff, and intimidation.
Control of the mischief has eluded URA executives over the years to date, with former commissioner general, Ms Doris Akol, fired for, among others, reportedly failing to tame corruption in the tax body. Ms Akol, who had succeeded the long-serving Ms Allen Kagina, was reportedly undermined by some of her lieutenants.
“The level of subtlety in exacerbating these schemes is somewhat top-notch,” a former URA commissioner for customs told Saturday Monitor. “There are some people who come to URA to work. Others are on a mission to get rich.”
The former commissioner proceeded to note that “the organisational corporate governance structure has changed for the better, and there is no tolerance for corruption at least to the outside. On the inside, it is a different story. There are also several explanations, one might argue that it is hard to enforce good manners among a staff of around 3,000. But also, if those in top management are on a mission to self-enrich, how do you expect the general staff not to do the same?”
The recent implanting of army officers in the tax body, some of whom were installed as superiors of civilian technical personnel, on the pretext of strengthening internal systems, immediately sparked unease and led to fractured working relations among staff.
“On the outside, URA changed for the better; on the inside, it is another story,” one customs enforcement official noted.
Speaking at the first Emmanuel Mutebile memorial lecture on January 27, President Museveni complained about the corruption in URA and the Finance Ministry—its supervisor. Mr Museveni opined that corruption is contributory to Uganda’s stagnantly low tax-to-GDP ratio.
“I have told them many times, and I have enough evidence to show that there is a lot of under collections,” Mr Museveni said.
The President repeated the same claims after reading the Budget for the 2023/2024 Fiscal Year.
Under collection of taxes, tax avoidance and evasion through nefarious schemes like collusion are some of the daunting challenges that all URA commissioner generals have grappled with.
The latest Auditor General’s report for the financial year ended June 2022 detailed that the under-collection of revenue affects the overall delivery of public services by the government and leads to the escalation of public debt as borrowing increases to close budget funding gaps.
Tax exemptions doled out recklessly and sometimes dubiously haven’t helped matters, as have widespread financial illiteracy and various tax overheads that are choking the life out of small businesses while many big businesses get away with underpayment.
Low tax-to-GDP ratio
URA, the oldest integrated revenue authority in sub-Saharan Africa, was established as a semi-autonomous body to free the tax administration function from the bureaucracy of the mainstream public service and limit direct political interference in day-to-day operations by the Finance ministry.
Today, URA is not faring well in tax collections whilst Uganda’s tax-to-GDP ratio—that’s just under 14 per cent—is among the lowest in the East African Community. The government has been aiming to grow this proportion to at least 20 per cent by both widening the tax base and strengthening tax administration, including employing technologies such as Electronic Fiscal Receipting and Invoicing Solution (Efris), the Digital Tracking Solution (DTS) and the Rental Management System.
A number of tax avoidance schemes, however, remain lucrative businesses as a result of, especially impunity, systemic institutional decay, and the clientele patronage system.
Mr Xavier Ejoyi, the country director of ActionAid Uganda, said the lack of consistent statistics on tax evasion and a common framework makes the measurement of the same impossible.
“[URA] has enacted legal instruments to deter tax evasion. 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,” he told Saturday Monitor. “Furthermore, in the TPCA amendments for the Financial Year 2022/2023, the penalty for making false or misleading statements was increased from Shs4m to Shs110m as a deterrent measure to improve voluntary compliance. It is also important to note that whereas these efforts by URA are in place, tax evasion has continued, especially by government agencies.”
Organised crime paradise
According to our investigation, cigarettes and gold are two of the most run items by a cartel involving well-connected civilians, the army and police officers. It is facilitated, we’ve been told, by watchers inside URA. We were unable to establish the veracity of this claim.
The truck with government licence plates in the October 2020 incident, according to corroborated accounts, has been involved in at least five smuggling operations over the last three years. A URA enforcement officer stationed in Pakwach District, the gateway to West Nile that’s a top haven for smuggling, linked the truck to a decorated UPDF general. We were unable to verify the claim.
In another incident, according to logs seen by this newspaper, the same truck was intercepted in August 2021 at Pakwach en route to Kampala. This time it was transporting timber arranged neatly over two crates containing undisclosed sums of gold. Four months later, the same truck was busted in Arua.
“It is risky business. We have been shot at. Every day, we are fighting with these people,” one enforcement officer said. “We win some, and also lose some…”
Early last year, two URA enforcement officers attached to the customs office were briefly arrested and suspended from work for busting individuals smuggling 36 pieces of gold headed for Kampala. The smugglers kept threatening the URA officers that they are connected to “big people in Kampala.” Eventually, the staff were arrested and their case file was transferred to CID in Kampala. The charges were later dropped.
Guns and roses?
Another dramatic episode involved a gangster-style-like shootout at Kitubulu in Entebbe on June 9, 2021. An official police report filed indicates that some individuals claiming to be URA staff armed with an SMG rifle attempted to extort money around Entebbe magistrate court. This prompted officers attached to Flying Squad Entebbe to respond.
After the shootout, the driver of a saloon car carrying the rogue elements was identified as a Special Forces Command (SFC) soldier attached to URA at Nakawa. Enforcement officers in Entebbe told Saturday Monitor that the soldier in question had gone to facilitate a consignment of items when he crossed paths with other enforcement staff, leading to the shootout.
During our investigations, we encountered several of such cases that seem to suggest the cartels are in high places. We could not immediately establish whether URA has officially investigated some of the cases because we did not get responses to our inquiries.
Uganda’s tax system, Mr Ejoyi said, is one of the most modern in the region, but revenue collections, at just under 14 per cent of GDP, leave a lot to be desired.
“Up to five per cent of GDP is lost annually in tax leakages,” he noted, adding, “Uganda could widen its tax base by tapping into areas that are outside the tax net; applying tax instruments correctly and fairly; improving efficiency, transparency and accountability in tax administration. The government needs to close loopholes and stop giving out discretionary tax exemptions. Citizens are more likely to pay tax if they see public services improve.”
The Uganda Revenue Authority (URA) defines smuggling as an activity that involves the importation or exportation of goods with the objective of evading taxes.
The principal causes of smuggling, URA indicates, are greed for wealth, ignorance and lack of nationalism.
It takes several forms, including outright avoidance of official customs control points, under-declaration, undervaluation, misclassification of goods, falsification of documents and misdeclaration of the country of origin of goods.
The tax authority occasionally broadcasts news of the seizure of smuggled items as both a deterrent measure and to raise awareness. It, however, remains unclear how much the country loses in taxes as a result of smuggling.
The 2002 judicial commission of inquiry into corruption at URA, among other things, illuminated the breadth and length of smuggling by, including senior officials in government, who cost the government billions of shillings in taxes since the tax body’s inception in 1991. The Justice Julia Ssebutinde-led commission was an attempt by the government to placate the public and development partners unsettled by repeated corruption scandals in the late 1990s and early 2000s.
Narrow tax base
As part of widening the tax base, URA is experimenting with various approaches, from going for the low-hanging fruits (take taxation of public entertainment events) to employing both carrots and sticks to tap into the informal and real estate, among others.
With a lot of informality in the tax base, it means the tax burden has to fall disproportionately on a small circle in the formal sector, comprising the small working class and the few multinationals present in the country. While multinationals top URA’s taxpayers’ list, the Finance Ministry’s 2014 estimates showed they repatriate about $400m (about Shs1.05 trillion) annually in capital outflows in the form of dividend payments to the shareholders, as a result of the lax regulatory environment.
Even as the tax administration improves slightly, the government’s fiscal discipline is not growing correspondingly amid systemic corruption and a bloated public administration.
Tax exemptions remain a stain. For example, investments above $200m (Shs734 billion) established in the economic free zones in and outside Kampala are granted a 10-year income tax break, and those less than $30m (Shs110 billion) by foreign investors and $10m (Shs37 billion) by local investors are granted a five-year tax break.
Story Credit: Daily Monitor