THE REPUBLIC OF UGANDA

Transcription

1 THE REPUBLIC OF UGANDA REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF UGANDA REVENUE AUTHORITY - REVENUE COLLECTION FOR THE YEAR ENDED 30 TH JUNE 2016 OFFICE OF THE AUDITOR GENERAL UGANDA

2 TABLE OF CONTENTS LIST OF ACRONYMS... iii 1.0 INTRODUCTION BACKGROUND INFORMATION Revenue Collection OBJECTIVES OF URA AUDIT SCOPE PROCEDURES PERFORMED CATEGORIZATION AND SUMMARY OF FINDINGS Categorization of findings Summary of findings DETAILED FINDINGS GENERAL OBSERVATIONS Delays in collecting outstanding taxes Un-budgeted for tax revenues Accounting for Gross Tax Payment (GPA) balances at the year-end Lack of a follow up mechanism on assessments raised through Investigations DOMESTIC TAX DEPARTMENT Un-Declared incomes by service providers to Government Un-Authorized part payments and outstanding VAT obligations Review of Income Tax audit for Rock Global Oils (U) Ltd at DT Arua Station Un-penalized tax evasions Forged PRNs to Evade Stamp Duty Failure to deactivate VAT registered persistent Nil Filers Arrears Management at Iganga DT CUSTOMS DEPARTMENT Un-supported vehicles cleared under returning persons Prolonged storage of motor vehicles- Buwase bonded warehouses Warehouse - Manufacturing under Bond Audit of the Offence Management Process Delayed preparation of Want of Entry list Persistent under-valuation of imports ii

3 LIST OF ACRONYMS Acronym Meaning URA Uganda Revenue Authority VAT Value Added Tax TID Tax Investigations Department TAI Treasury Accounting Instructions PFMA Public Finance Management Act, 1995 IAC Internal Audit and Compliance MoFPED Ministry of Finance, Planning and Economic Development ASYCUDA Automated System for Customs Data Analysis IPSAS International Public Sector Accounting Standards PPDA Public Procurement & Disposal Authority UCF Uganda Consolidated Fund PS/ST Permanent Secretary/Secretary to Treasury EFT Electronic Funds Transfer CCS Commissioner Corporate Services EAC East African Community MOU Memorandum of Understanding iii

4 REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF UGANDA REVENUE AUTHORITY REVENUE COLLECTION FOR THE YEAR ENDED 30 TH JUNE, 2016 THE RT. HON. SPEAKER OF PARLIAMENT I have audited the accompanying financial statements of the Uganda Revenue Authority Revenue Collection for the year ended 30 th June, These financial statements comprise of the statement of revenue collection, statement of financial position, statement of revenue collection, statement of changes in net assets/equity and the statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Management Responsibility for the Financial Statements Under Section 4 (1)(a) of the Uganda Revenue Authority (URA) Statute, 1991, the Authority is tasked with the mandate to assess, collect and account for all government revenue to which specified Uganda laws apply. Under Section 10(2) of the same Statute, the Commissioner General is responsible for the day-to-day operations of the Authority; the management of funds, property and business of the Authority and for the administration, organization and control of the other officers and staff of the Authority. These financial statements are also under Section 17(1) of the same Statute, the responsibility of the Authority and the Commissioner General. This responsibility includes preparation and fair presentation of the financial statements in accordance with the Public Finance Management Act, 2015 and International Public Sector Accounting Standards (IPSAS), and for such internal controls as management determines is necessary to enable the preparation of financial statements that are free from material misstatements whether due to fraud or error. Auditor s Responsibility My responsibility as required by Article 163 of the Constitution of the Republic of Uganda, 1995 (as amended) and Sections 13 and 19 of the National Audit Act, 2008 is to audit and express an opinion on these statements based on my audit. I conducted the audit in accordance with 1

5 International Standards on Auditing. Those standards require that I comply with the ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing audit procedures to obtain evidence about the amounts and disclosures in the financial statements as well as evidence supporting compliance with relevant laws and regulations. The procedures selected depend on the auditor s judgment including the assessment of risks of material misstatement of financial statements whether due to fraud or error. In making those risk assessments, the Auditor considers internal control relevant to the entity s preparation and fair presentation of financial statements in order to design audit procedures that are appropriate in the circumstances but not for purposes of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management as well as evaluating the overall presentation of the financial statements. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion. Part A of this report sets out my opinion on the financial statements. Part B which forms an integral part of this report presents in detail all the significant audit findings made during the audit which have been brought to the attention of management. PART A Opinion In my opinion, the statement of revenue collection presents fairly in all material respects the revenue collection for the year ended 30 th June, 2016 in accordance with the requirements of the Uganda Revenue Authority Act, Report on other legal requirements As required by the Uganda Revenue Authority Statute, 1991 and the National Audit Act, 2008, I report to you, based on my audit, that: i. I have obtained all the information and explanations, which to the best of my knowledge and belief were necessary for the purpose of my audit. 2

6 ii. In my opinion, proper books of account have been kept by the commission so far, as appears from my examination of those books; and iii. The statement of financial position and statement of support, revenue and expenses are in agreement with the books of account. Emphasis of Matter Without qualifying my opinion, I draw your attention to the matter described below: Accounting for Gross Tax Payment (GPA) balances at the year-end Taxes amounting to UGX trillion were collected during the year. This figure includes (GPA) balance deposits at the year-end of UGX.154,139,727,715 which was considered as part of revenue performance. The deposits are not yet government income and can be reclaimed through tax refunds, thus misrepresenting revenue performance for the year. Delays in collecting outstanding taxes Tax arrears for Customs and Domestic taxes all totaling UGX.710,208,669,503 at the year end compared with UGX.375,527,650,042 in the prior year registered an overall significant increase of 89.12%. Included in the period tax arrears is a sum of UGX.116,521,858,308 relating to tax payers whose recoverability seems remote because these taxes have been outstanding since John F.S. Muwanga AUDITOR GENERAL KAMPALA 21 st December,

7 REPORT OF THE AUDITOR GENERAL AND SUPPLEMENTARY INFORMATION 4

8 PART B DETAILED REPORT OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF UGANDA REVENUE AUTHORITY (REVENUE DEPARTMENTS) FOR THE YEAR ENDED 30 TH JUNE 2016 This section outlines the detailed introduction, background information, entity financing, audit findings, management responses, and my recommendations in respect thereof. 1.0 INTRODUCTION In accordance with Article 163(3) of the Constitution of the Republic of Uganda, 1995 (as amended) and Section 17(2&4) of the Uganda Revenue Authority Act CAP 196 of 1991, I am required to audit and report on the public accounts of Uganda that is to say, all public offices including branches countrywide. Accordingly, I carried out the audit of Uganda Revenue Authority Corporate Services Department to enable me report to Parliament. 2.0 BACKGROUND INFORMATION URA is located at Plot M193/M194 Nakawa Industrial Area as its head office, while the Domestic Tax and Customs departmental heads occupy up-to the ninth floor of the tall towers of crested towers. The Authority has 86 branches countrywide. URA was established by an Act of Parliament Chapter -196 of 1991 for the assessment and collection of specified revenue, to administer and enforce the laws relating to such revenue and to provide for related matters. 3.0 Revenue Collection URA Collected revenue as mandated by the Act and targets set in its annual plan. A total of UGX.11,496,739,175,048 was collected during the year which constituted 96.29% of its approved Gross target of Shs.11,939,108,644,334. The shortfall in revenue collected amounted to UGX.442,369,469,286 which constituted 3.71%. 4.0 OBJECTIVES OF URA URA major objectives include; 5

9 To administer and give effect to the laws or the specified provisions of the laws set out in the ACT, and assess, collect and account for all the revenue to which those laws apply. To advise the Minister on Revenue implications, tax administration and aspects of policy changes relating to all taxes referred to in the ACT. To perform such other functions in relation to revenue as the Minister may direct. 5.0 AUDIT SCOPE The audit was carried out in accordance with International Standards on Auditing and accordingly included a review of the accounting records and agreed procedures as was considered necessary. The audit was carried out with regard to the following objectives:- a. The financial statements have been prepared in accordance with the requirements of the Public Finance Management Act, 2015, and fairly present the income and expenditures for the year and of the financial position as at the end of the year. b. All URA retentions were utilized with due attention to economy and efficiency and only for the purposes for which the funds were provided. c. Goods and services financed have been procured in accordance with the PPDA Act. d. Evaluating and obtaining a sufficient understanding of the internal control structure of the authority, assess control risk and identify reportable conditions, including material internal control weaknesses e. Management was in compliance with the Government of Uganda Financial Regulations, Income Tax Act, VAT Statute, EAC and Customs Management Act. f. All necessary supporting documents, records and accounts have been kept in respect of all activities, and are in agreement with the financial statements presented. g. Revenue i) Cash books for all the revenue collection account were properly kept and reconciled to the respective bank statements in a timely manner. ii) All due import taxes are properly assessed and accounted for 6

10 iii) Domestic tax returns are properly filed and self-assessments reviewed. iv) Domestic taxpayer audits are properly planned and executed and resulting taxes fully accounted. 6.0 PROCEDURES PERFORMED The following audit procedures were undertaken:- a. Revenue Obtained all schedules of all revenues collected and reconciled the amounts to the authority s cashbooks and bank statements. b. Expenditure The URA payments vouchers were examined for proper authorization, eligibility and budgetary provision, accountability and support documentation. c. Internal Control System Reviewed the internal control system and its operations to establish whether sound controls were applied throughout the period. d. Procurement Reviewed the procurement of goods and services under the authority during the period under review and reconciled with the approved procurement plan. e. Fixed Assets Management Reviewed the use and management of the assets of the Authority during the period under review. f. Financial Statements Examined, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessed the accounting principles used and significant estimates made by management; as well as evaluating the overall financial statement presentation. g. Tax Returns and Assessments Reviewed revenue tax returns and tax assessments to ensure that all taxes due to URA were collected, disclosed and transferred to the consolidated fund in a timely manner. 7

11 7.0 CATEGORIZATION AND SUMMARY OF FINDINGS 7.1 Categorization of findings The following system of profiling of the audit findings has been adopted to better prioritize the implementation of audit recommendations: No Description Category 1 Has a significant/material impact, has a high likelihood of High significance reoccurrence, and in the opinion of the Auditor General, it requires urgent remedial action. It is a matter of high risk or high stakeholder interest. 2 Has a moderate impact, has a likelihood of reoccurrence, and in the opinion of the Auditor General, it requires remedial action. It is a matter of medium risk or moderate stakeholder interest. 3 Has a low impact, has a remote likelihood of reoccurrence, and in the opinion of the Auditor General, may not require much attention, though its remediation may add value to the entity. It is a matter of low risk or low stakeholder interest. Moderate significance Low significance 7.2 Summary of findings No Issue Raised Category 8.1 GENERAL OBSERVATIONS Delays in Collecting Outstanding Taxes High Un-Budgeted for tax revenues - UGX.208,940,345,539 High Accounting for Gross Tax Payment (GPA) balances at the yearend High Lack of a follow up Mechanism on Assessments Raised through Moderate Investigations 8.2 DOMESTIC TAXES DEPARTMENT Un-Declared Incomes by Service providers to Government High Un-authorized part payments and outstanding VAT obligations High Review of Income Tax Audit for Rock Global Oils (U) Ltd; at DT Moderate Arua Station Un-Penalized Tax Evasion Moderate Forged PRNs to Evade Stamp Duty UGX.3,928,000 Moderate Failure to Deactivate VAT registered Persistent Nil Filers Low Arrears Management at Iganga DT Low 8.3 CUSTOMS DEPARTMENT Persistent Under Valuation of Imports Moderate Un-Supported Vehicles Cleared under Returning Persons Moderate Prolonged Storage of Motor Vehicles- Buwase bonded Moderate warehouses 8

12 8.3.4 Warehouse - Manufacturing under Bond Moderate Audit of the Offence Management process Moderate Delayed preparation of Want of Entry list Low 8.0 DETAILED FINDINGS 8.1 GENERAL OBSERVATIONS Delays in collecting outstanding taxes UGX.710,208,669,503 The Authority had tax arrears for Customs and Domestic taxes, all totaling UGX.710,208,669,503 at the year end compared with UGX.375,527,650,042 in the prior year registering an overall 89.12% increase. It was noted that Domestic Tax arrears registered the highest growth of % from UGX.321,677,441,987 in the prior year to UGX.671,299,167,552 for the year under review. I also noted incidences where there were delays in collecting and accounting for assessed taxes. For instance, Uganda Telecom Ltd; has accumulated tax arrears of UGX.85,246,352,694 (approximately 13%) of the total Domestic arrears since 2007/08. Others include WBS UGX.9,095,635,790 (since 2006), GM Tumpeco UGX.5,834,795,425 (since 2008), Roko Construction UGX.1,352,018,380 (since 2008) and Uganda Electricity Transmission Company Ltd, UGX.14,993,056,019 (since 2009). Under Customs taxes, BIDCO has accumulated UGX.20,088,300,806 (51.63%) of total Customs arrears for the year since A sum of UGX.5,782,558,733 has not been collected from Pioneer Easy Bus Limited since 2012 and another UGX.1,460,005,693 have been outstanding from MTN (U) since Delays in recovery of assessed taxes have greatly contributed to the growth in tax arrears. There is a risk that the arears may reach un-manageable levels which may lead to loss of revenue. Although management had indicated that they had taken some actions aimed at recovery, only Uganda Electricity Transmission Company Ltd made some steps in recovering some funds and the rest had submitted commitments that have not yet yielded good results. 9

13 I advised the accounting officer to put in more efforts towards the recovery measures currently in place to ensure timely collection of already assessed taxes Un-budgeted for tax revenues - UGX.208,940,345,539 I reviewed the statement of comparison of target and actual revenue collection by tax head and noted that some tax heads were not budgeted and yet significant collections were made in the past two years. Compared with the prior year performance, these tax heads have registered growth with the exception of WHT on winning on games and VAT on local service tax. Details are in the table below. The prior year collections would have provided a basis for setting targets and therefore guide the budgeting process. Tax Heads Amount 2014/15 Amount % increase 2015/16 Sundries and Penalties 32,630,451,260 37,590,237, % Other Customs Penalties 9,740,062,265 23,494,342, % VAT on Imports Non- 15,160,419,462 30,710,957,441 Registered % VAT on Local Service Tax 5,856,963,938 2,470,418, % Withholding Tax on 89,367,474, ,823,606,078 Government Payments 68.77% Withholding Tax on Management and 45,446,896,612 61,860,358,660 Professional Fees 36.12% WHT on Dividends 61,822,730,821 69,109,031, % WHT on Treasury Bills 218,014,763, ,860,745, % WHT on Non-Residents 57,105,841,599 79,583,036, % WHT on Winnings on 10,292,505,311 7,234,459,861 Games % Total 545,438,109, ,184,545, % Failure to budget for revenue may distort performance of a tax code. It is also an indicator that there are revenue sources not given much attention to yet these could increase the revenue base and yield. Management explained that the target for each revenue line is set by Ministry of Finance. MOFPED did not provide targets for the categories noted but URA will follow up the matter with the responsible persons. 10

14 Management action on the matter is awaited Accounting for Gross Tax Payment (GPA) balances at the year-end According to the URA Accounting manual part C1 section-e procedure (8), Gross Payments Account (GPA) is defined as a pre-payment account which is credited with all tax collections banked in respective banks which are connected to ASYCUDA world system as deposits and will be debited when the tax payers utilize these deposits to clear goods. According to the statement of revenue collection, customs and exercise taxes amounting to UGX trillion was collected during the year. This figure includes GPA balance deposits at the year-end of UGX.154,139,727,715 which was considered as part of revenue performance. I appreciate that revenue is recognized on the cash basis of accounting as per URA policy. However, if considered in the perspective of substance over form, these deposits are not yet government income and can be reclaimed through the tax refund process by the respective tax payers. It should be noted that the same issue was raised in the FY 2014/2015 and URA management had promised to consider this matter while revising the URA accounting manual. However, no update was availed for my verification in regard to its implementation. There is a risk of misstatement of revenue performance for both the year under review and the previous year. Management explained that accrual accounting for revenue will be considered with the implementation of e-tax 2 as this calls for changes in processes and policies. Management is considering phasing out the use of GPA since it does not comply with the accounting standards for revenue recognition. The banks are now efficient and tax payers can make their payments through RTGS, EFT, TT, etc. I advised the accounting Officer that for as long as GPA has not been phased out, management should consider revising the revenue accounting policy towards accrual and also encourage importers to consider the current banking systems in place like online banking to replace GPAs. 11

15 8.1.4 Lack of a follow up mechanism on assessments raised through Investigations During the year, Tax Investigations Department (TID) handled 39 revenue cases and raised assessments worth UGX.63,864,022,200 which were forwarded to the respective departments for collection. Out of the 39 cases investigated 22 were submitted to the legal department for prosecution. However, there was no evidence that feedback is regularly provided to TID on the status of prosecution of cases forwarded. TID appears to be satisfied with their efforts as long as investigation results are forwarded to the respective departments for action without requiring feedback. Efforts of TID have not resulted into intended benefit since the assessments made are left hanging. All the submitted assessments during the year have remained un-collected by the year end with a risk of loss of revenue. The in-charge TID explained that cases investigated and its findings are forwarded to the respective Departments for assessment & collection. The role of issuing assessments & collection of tax is played by the operational Departments of Customs and Domestic taxes. TID conducts monthly engagements with Legal to establish the status of cases sent for prosecution. I advised the accounting officer that TID should hand over cases for collection after agreeing the terms of payment in an MOU with the alleged taxpayer. TID should also require regular feedback for cases submitted for prosecutions to provide learning points during evidence gathering. 8.2 DOMESTIC TAX DEPARTMENT Un-Declared incomes by service providers to Government Section 59 of the VAT Act CAP 349 provides that anyone who makes a statement to an officer of URA that is false or misleading or omits from a statement made to an officer of the Uganda Revenue Authority any matter or thing without which the statement is misleading, commits an offence. Furthermore, section 65 of the VAT Act requires taxpayers who are found to have submitted misleading returns to be penalized and interest collected before they are allowed to register again. 12

16 A review of IFMS payment files for various government entities which I limited to Ministry of Finance, Planning and Economic Development (MoFPED), Ministry of Local Government (MoLG), Jinja Municipal Council and Iganga local government, it was observed that from a sample of 117 taxpayers who received government payments worth UGX.14,196,378,727 made false declaration of VAT in their monthly VAT returns by excluding output tax (sales) arising from services rendered to government from their monthly VAT returns and some were not actually registered for VAT. This resulted from failure by MoFPED to exclusively interface the e-tax system and the IFMS system for purposes of information sharing to enable accurate ascertainment of output VAT by service providers. A sample results include; TIN Amount received as per IFMS Government institution paying Tax station Audit remarks ,416,826,376 Jinja Municipal Council KAMPALA NORTH Not Declaring Vat In Their Monthly Vat Returns ,898,305 Ministry of Local Government LTO Not Declaring Vat In Monthly Returns ,728,814 Ministry of Local Government LTO Not Declaring Vat In Monthly Returns ,279,531 Ministry of Local Government LTO Not Declaring Vat In Monthly Returns 383,555,117 Jinja Municipal Council Not Registered For Taxes By Ura ,128,000 Ministry of Finance MTO Not Declaring Vat In Monthly Returns ,128,000 Ministry of Finance MTO Not Declaring Vat In Monthly Returns 271,840,337 Jinja Municipal Council MTO Not Declaring Vat In Their Monthly Returns Because They Deal In Petroleum Products Which Are Exempt 247,941,926 Ministry of Finance LTO NOT DECLARING VAT IN MONTHLY RETURNS ,574,293 Ministry of Finance KAMPALA EAST Not Declaring Vat In Monthly Returns 205,439,741 Ministry of Local Government Not Registered For Taxes By Ura ,888,746 Ministry of Finance LTO Not Declaring Vat In Monthly Returns ,001,066 Ministry of Finance LTO Not Declaring Vat In Monthly Returns ,970,000 Ministry of Finance LTO Not Declaring Vat In Monthly Returns ,773,571 Ministry of Local Government LTO Not Declaring Vat In Monthly Returns 13

17 ,321,383 Ministry of Local Government KAMPALA EAST Not Declaring Vat In Monthly Returns ,964,273 Ministry of Local Government LTO Not Declaring Vat In Monthly Returns 111,139,099 Ministry of Local Government Not Registered For Taxes By Ura 110,403,331 Jinja Municipal Council Not Registered For Taxes By Ura ,337,291 Ministry of Finance LTO Not Declaring Vat In Monthly Returns ,959,906 Ministry of Local Government LTO Not Declaring Vat In Monthly Returns ,959,906 Ministry of Local LTO Government 9,285,633,305 Management admitted that there is a gap between the information availed by the suppliers to government and the actual payments made by Government. An IFMS tool was designed and launched in September 2014 whose purpose was to enable registration of all government employees and suppliers to ensure that they have TINs before any payment is advanced to them by government and relaying this information to URA. However, the information provided is limited since there is no direct interface to the IFMS data base. A Public Sector Office (PSO) has been established to analyze the transactions being relayed in the IFMS tool and take further action on it. I advised the Accounting Officer to consider the identified tax payers for audit investigation and recovery of all due taxes arising from un-declared incomes. Management should also partner with the Accountant General s office to work out modalities aimed at interfacing e-tax with IFMS for purposes of enhancing tax collections Un-Authorized part payments and outstanding VAT obligations Section 65(3) states that, a person who fails to pay tax imposed under the VAT Act on or before the due date is liable for a penal tax on the unpaid tax at a rate specified in the fifth schedule for the tax which is outstanding. A comparison was made between the taxpayers appearing on the VAT register (for Jinja DT, Iganga DT, Busia DT, Mbale DT, Tororo DT, Kampala Central and Kampala South as 14

18 at August 2016) with the list of taxpayers who filed VAT returns from July 2015 to May It was noted that tax payers in VAT payable position did not make any payment towards settlement of their outstanding VAT tax liabilities by the due date of 15 th of the every month. An inspection of a sample of 7 stations indicated that UGX.6.673bn was outstanding. The respective individual verification results are as per table below. DT Stations Number of Taxpayers filled returns VAT amount filled i.e. in the filled return (UGX.) VAT amount actually paid Jinja 06 12,768,002 0 Iganga 06 4,825,681 0 Busia 11 18,445,717 0 Mbale 04 24,903,576 0 Tororo 23 2,615,630 0 Kampala Central 560 6,413,993,436 0 Kampala South ,999,453 0 Total 6,673,551,495 In addition, it was noted that tax payers who made tax payments in relation to their VAT payable positions, paid less than the amount of VAT payable that they had declared in their VAT returns for the period July 2015 to May 2016 thus creating an outstanding balances of UGX.3.170bn between total VAT payable and total actual amount paid. The individual verification results as per table below. DT Stations Number of Taxpayers filled with VAT payable manner, there is a risk that tax arrears will grow. 15 VAT variance from the payable to actual payments in the bank (UGX.) Jinja 28 42,584,803 Iganga 12 1,943,640 Busia 09 2,672,421 Mbale 28 48,008,365 Tororo ,532,564 Kampala Central 141 1,306,636,256 Kampala South 141 1,651,271,339 Total 3,170,649,388 This situation was attributed to insufficient monitoring of taxpayer compliance and enforcement mechanism by the stations. Unless due amounts are recovered in a timely

19 Management explained that when the taxpayer files their returns, they can make payments bit by bit however the full payments of the tax for the respective period are expected by the due date of filing the return. DT has put in place units in each station to monitor normal flows i.e. identifying the amounts declared viz a viz the amounts paid by the due date. In case of non-payment by the due date, enforcement measures are taken up which include sending of reminders, issuing of agency notices and finally forwarding the cases to Debt Collection Unit (DCU) for further management. I advised the Accounting Officer to institute a monitoring system that will enable prompt reconciliations and collection Review of Income Tax audit for Rock Global Oils (U) Ltd at DT Arua Station According to Section 18 of the Schedule to the Stamps Act, an increase in the share capital of a company registered in Uganda attracts stamp duty of 0.5% of the total value. It was established that the taxpayer`s final income tax returns for 01/07/ /06/2013 declared an additional issue in share capital of UGX.3,697,700,000 but stamp duty of UGX.18,488,500 was not assessed and collected. I advised management to collect the assessed stamp duty and also ensure comprehensive tax audits are conducted Un-penalized tax evasions Section 65(5) of the VAT Act provides for penalties for false tax declarations and misleading omissions. According to the 2 nd quarter tax investigations report conducted by DTI, a total of 8 cases involved fraud schemes designed to evade VAT through incorporating brief case companies to file fictitious returns. It was noted that 2 cases reference URA/TI/IA/039/14-15 and URA/TI/IA/040/14-15 involved in tax fraud had no estimated obligation after completion of the investigation and the case file was closed. Furthermore no assessments were raised for the beneficiaries of the tax fraud schemes. Failure to penalize such tax evasions may encourage filling of false and misleading tax returns by taxpayers since no punitive actions will be applicable. It also implies that the tax liabilities of the above tax payers is understated and may lead to loss of due 16

20 collectable revenues. This defeats the purpose for which the section of the law was made. I advised management to provide a status of the tax loss caused by the fraudulent tax schemes and to recover the taxes from the final beneficiaries of these schemes Forged PRNs to Evade Stamp Duty of UGX.3,928,000 According to the 4 th quarter Tax Investigations Report, a case referenced ID regarding forged Payments Registration Number (PRNs) and stamp certificates was investigated. The forged PRNs were for applications for endorsement/caveats of motor vehicles to be used as security for loans issued. The investigations established that the stamp certificates and PRNs presented to URA by the law firm contracted to handle the transactions were forged and stamp duty worth UGX.3,928,000 was not paid. This implies that stamp certificates were issued without confirming the status of the PRNs in e-tax resulting into the above tax liability. By the time of this report the tax liability was still outstanding and there was no evidence that the offenders were penalised. There is a risk of similar forged PRNs being transacted with URA without detection, leading to loss of revenue. I advised the Accounting Officer to recover the above revenue inclusive of penalties Failure to deactivate VAT registered persistent Nil Filers Section 9 subsections (1 & 2) of the VAT Act requires a taxable person to apply for cancellation of VAT registration if that person ceases to make taxable supplies, in the most recent three calendar months the value of taxable supplies exclusive of VAT does not exceed one quarter of the annual registration threshold of UGX.37.5 Million and the value of taxable supplies exclusive of VAT for the previous twelve months does not exceed 75 percent of the annual threshold UGX Million. Furthermore, the Commissioner General is required under section 9 subsection 4 to cancel the registration of a person who is neither required nor entitled to be registered. 17

21 It was noted that 2,240 of the current VAT registered tax payers may not be required to remain on the register for VAT because they continuously filed nil returns throughout the financial year 2015/2016. Such tax payers simply bloat the VAT register with a false impression of a wider/growing tax base without actual revenues being realized. There is a risk that the nil filers could be charging VAT to final consumers including government without accounting for it in their monthly VAT returns thus depriving government of VAT revenue. Management explained that while the numbers may appear bloated the law may not allow removal of some entities like Government bodies such as local authorities, sub counties; municipal councils which are required by law to be registered for VAT. However, it shall be noted that for a taxpayer to be deregistered a series of compliance actions need to be taken like inspection of the premises to verify existence of the business and audit of the taxpayer to ensure that there are no outstanding liabilities before deactivation. I advised the Accounting Officer to review the eligibility of the category of tax payers (Government entities) for VAT registration and also ensure that the rest are subjected to deregistration procedures Arrears Management at Iganga DT The Arrears Management Guidelines provide the strategies which should be followed by DT stations in the collection of any tax arrears. The strategies include proper profiling of arrears cases for DCU, maintenance and monitoring the arrears stock, and generation of periodic arrears stock. A review of Iganga DT stock of Arrears as at June 2015 and taxpayers records at the station revealed the following: Cases with outstanding taxes amounting to UGX.83,644,673 where the Agency Notices had been issued to the banks and they had written back to URA stating that they had no records matching the affected taxpayers' particulars were still being handled by the station instead of being forwarded to DCU for further recovery action. 18

22 Assessments from audits amounting to UGX.228,789,648 that had been communicated and agreed with the taxpayers were not included on the arrears report. Estimated assessments for taxpayers that do not file returns amounting to UGX.127,370,372 were not included on the Arrears Report for follow up. The arrears report also revealed that there were no assessments recorded in the months of January 2014, March 2014, July 2014, September to December 2014, January 2015, May to July 2015 implying that the arrears at the station could be under stated. The Officers at the station stated that there was no official handover of arrears report by the previous station head. Management explained that estimated assessments were printed and demand letters were served however, most of these clients were non-government organizations. Assessment and demand letters were served. I advised the accounting officer to ensure that all the cases that have not yielded any money through Agency Notices are forwarded to DCU for tax recovery action as per the established procedures. 8.3 CUSTOMS DEPARTMENT Un-supported vehicles cleared under returning persons The EAC Customs Management Act 5 th schedule part A item 5(3) exempts a returning resident who has been out of country for at least 12 months, one motor vehicle he/she has been using abroad. It should further be noted that all vehicles should be used on the road after proper payment of all taxes and registration fees accordingly. It was noted that twenty five (25) motor vehicles in this category were cleared without any evidence of payment of taxes. It was further noted that the inspection act within the ASYCUDA system was also blank without any verification accounts. There were no scanned copies of supporting documentation to justify the exemptions. Lack of proper 19

23 documentation could be an indication that the above mentioned vehicles were irregularly exempted and released hence loss of revenue. Management in their responses indicated that all the records were available however our team was unable to examine the documents because they were not provided for verification. I await the documentation to assess whether taxes on these vehicles were indeed accounted for Prolonged storage of motor vehicles- Buwase bonded warehouses All warehoused goods which have not been removed from the warehouse in accordance with section 57 of the EACCM act within six months from the date on which they were warehoused may with the written permission of the Commissioner Customs be rewarehoused for a further three months. Thereafter they shall be sold by public auction after one month s notice of such sale. During inspection of Buwase bonded warehouse at Jinja, it was noted that five units (motor vehicles) have been in the bonded warehouse beyond the set statutory time and these have not been put on the want of entry list for subsequent sale. There was no written extension of warehousing by the Commissioner provided when requested. It was explained by the in-charge of the bond that the taxes for the units were cleared under the old system (ASYCUDA++) but are not captured in the new system (ASYCUDA World). It appears that there are unresolved issues surrounding the release of the units. The table below provides details of the units. See vehicle particulars in the table below; No. CHASIS NO. ENTRY NO 1 USED MITSUBISHI FUSO FM516J C 4817 RX USED MITSUBISHI FUSO FV416J S USED MITSUBISHI FUSO FU410U C1264 R USED ISUZU TRUCKCXM71U C 4042 R USED ISUZU GIGA CYM50VZ C

24 Prolonged storage of the units leads to deterioration of the physical condition and depreciations which in turn leads to loss of revenues. Management explained that some units failed to be registered during migration to ASYWORLD from ++ and others are difficult to sale even after reducing the reserve price. I advised the accounting officer to auction the vehicles and recover taxes before further loss of value in line with the guidelines Warehouse - Manufacturing under Bond It is a requirement for all warehoused goods that have been released to the manufacturing process from which the goods are entered for home consumption to be ex- warehoused by lodging an ex warehousing entry (IM4) and taxes paid at CET rate. It was noted that at Bond W0352 (Crane Paper bags), ex-warehousing for all goods is done using Exemption Procedure code 472 with a conditional exemption of manufacturing for export only. However, review of the cleared transactions revealed that Crane Paper bags also sales its finished products locally. Taxes for the raw materials used should have been paid using CPC 452 (exemption on imports for raw materials), yet all declarations were referenced by CPC 472 entries. This implies that using CPC 472 declarations as exwarehousing entries for goods sold locally is wrong as per the condition. Declaration for home consumption is made after finished goods manufactured have been sold, verification accounts prepared then are for the finished product, yet tax payment is in reference to the raw material component used to manufacture the finished product. This might have been attributed to lack of clear procedures to follow for manufacturer declaring the raw material component for the finished goods to be released for home consumption. Government is likely to lose tax should many of these cases arise. 21

25 Management explained that the review of Customs Procedure Codes (CPC) is still ongoing. Management implementation of this matter is awaited Audit of the Offence Management Process Raw materials whose finished products are sold to the local market should be exwarehoused using tax payment entries (IM4s i.e. under CPC 452). According to the Offence Management Guideline 2010, cases resulting in loss in taxes above $5,000 should be referred for prosecution through the Assistant Commissioner. However, I noted that some of the cases under this category had been compounded at some of the stations that we visited without clear justification why the offenders were not forwarded for prosecution as required. The Officers indicated that some of the cases were compounded after review by Customs Management but there was no documentary evidence to confirm the assertions as requested by the IAC Team. Management explained that the prosecution of such offenders is discretionary and each case is determined on its own merit within the provision of the Law (EACCMA). I advised management to ensure proper management of offenses and where compounded, reasons/explanations should be properly documented Delayed preparation of Want of Entry list Goods on Want of Entry are those that have exceeded their statutory storage period in a customs warehouse beyond six (6) months and have not been re-warehoused. Section 57(2) of the EACCM Act, requires that such goods should be sold by public auction after one month s notice of such sale being published in such manner as the Commissioner may deem fit. A review of the want of entry list obtained from Jinja revealed that several items had delayed accessing the list as per their warehousing entry dates. For instance, Daihatsu 22

26 Terios with a T1 reference D has been in CPA bond since 25/6/2012, another Toyota Noah with warehousing reference S2735 has also been in the same bond since 20/10/2014. This contravenes the provisions of the Act as stated above. The delay negatively impacts on the realization of the taxes collectible in form of auction proceeds as the goods deteriorate/depreciate in value. Management in their response explained that the units were put on want of entry on time. A want of entry list is cumulative and frequently updated. Some goods are removed and others added while others remain if they have not been bought during auction. The Daihatsu Terios mentioned has been on Auction list for long but without any body bidding for it during various auctions in Kampala even after adjusting the reserve price twice (under lot no. 1483/15). Some of the units were sold in auction others still on WOE, others have paid taxes. I advised the accounting officer to ensure timely listing of due items on the want of entry to enable timely auctions and prompt realization of the due taxes to boost revenue collections Persistent under-valuation of imports According to Tax Investigations report, a company with reference number URA/TI/IA/036/14-15 was allegedly involved in under declaration of customs values of imported products like various brands of Red Sweet Wine and Olive Oil from Italy. The assessed taxes then were UGX.823,324,156 as per details in the table below; Tax Head Amount Import Duty 321,546,168 Exercise Duty 662,957,043 Value Added Tax 408,723,819 Withholding Tax 77,171,080 Development Levy 19,292,770 Total Assessed 1,489,690,880 Tax Paid at Importation (666,366,724) Taxes Under Declared 823,324,156 23

27 However it was noted that a case with the same reference number URA/TI/IA/036/14-15 was investigated in the year 2015/16 and amounts worth UGX.3,549,411, were assessed as outstanding taxes arising from under declared customs values of imported products as per the table below. It appears this importer has been undervaluing declarations un-detected and paying less tax for several years. Year outstanding taxes ,291, ,285,014, ,344,456, ,649, total 3,549,411, It was further noted that there was no evidence of settling the first obligation assessed in 2014/15. There is a risk that similar undetected under declarations may have led to revenue losses. There is also a risk of non-collection of the assessed taxes. I advised management to ensure full collection and consider investigating the staff involved in passing these entries for possible reprimand. 24

28 APPENDIX I FINANCIAL STATEMENTS 25