Going by his latest letter on the matter, President Museveni is clearly convinced that top officials at URA and others in the Finance Ministry must be conniving with telecom companies to annually deprive his government of not less than $400m in unpaid taxes.
Museveni believes his government can “end borrowing” once the URA becomes serious and adequately identifies potential tax sources embedded in the telecom industry. His two page letter, in which he comes off very angry at URA, Museveni clearly implies the telecom industry is being undertaxed because of “collusion” involving what he calls “unserious” top officials at both URA and Finance Ministry.
His letter is dated 12th March 2018 and it’s addressed to Finance Minister Matia Kasaija under the title “Lack of Seriousness in tax collection.” It’s copied to VP Edward Sekandi, Premier Ruhakana Rugunda, Local government minister Tom Butime and URA Commissioner General Doris Akol.
The President says he is tired of dependency on borrowing, aid from donors manifested in grants and project support, a predicament that can only be overcome once there is serious prudent leadership at URA properly supervised by the Finance Ministry.
“I’m beginning to confirm there is total lack of seriousness, at the very least, or collusion, at worst, among your [Kasaija & Akol] tax identifiers and collectors,” Museveni’s letter reads in part. This latest letter corroborates what one of our dependable sources close to Museveni has repeatedly been telling us about the big possibility of Gen Kale Kayihura (whom M7 has resumed praising publicly) bouncing back as Commissioner General URA.
Three factors validate this possibility: the ex-IGP is loyal to his boss, gracefully reacted to his knifing from police and has deep history in tax administration having headed Special Revenue Protection Services (SRPS) which Museveni believes significantly contributed to the obliteration of rampant armed smuggling of the 1990s and pre-2000s.
Museveni says there is a lot of potential taxes in the telecom industry that URA isn’t collecting and he believes this is because of collusion by URA officials to betray and rip off their own country that pays them so handsomely. He questions why URA only collects VAT on airtime sales and doesn’t collect excise duty from the telecoms’ airtime transactions. He also wonders why URA indolently depends exclusively on information the telecoms furnish it with to determine their tax liability-rather than doing their own independent assessment to accurately determine their tax liability. He says a lot of would-be tax money is lost because URA is depending “on false declarations by the telephone companies.” He also questions why URA doesn’t tax “voice [telephone] conversations and other non-educational communications over the internet.” Museveni, who clearly wants revenues telecoms make from services like whatsapp subjected to taxation, enumerates non-educational internet communications to include “social media, whatsapp, facebook etc.”
Museveni, who has been having a difficult debate with URA and Finance Ministry technocrats over the alleged under taxation of the telecom industry, adds that: “Why not put excise duty on airtime?” He then illustrates why excise duty must be imposed on the telecom industry. “When you manufacture a shirt you pay excise duty at the factory level. When the shirt is eventually sold, it also pays VAT paid by the consumer. Whether the shirt is bought or not, it will have paid the excise duty. Are your [URA] officials aware of these [basic] principles of taxation?” He then proceeds to discuss of the Over-The-Top (OTT) platforms like whatsapp, Skype, viber, twitter and others. To drive his point home on OTT, Museveni makes the following illustration: “If we were to introduce a small fee of Shs100 per day from sim cards that are used by these OTT that would generate about Shs400bn additional revenue. This estimate is on the basis of the minutes that we have captured being used by Ugandans over OTT. This does not include the undeclared calls and data by the telephone companies. These could be of the magnitude of $400m per year.” Museveni says this cool $400m would be realized by just imposing excise duty of airtime sales and internet-based phone calls made using OTT platforms like whatsapp etc.
Museveni’s latest (12th March 2018) letter showing disgust with Kasaija & Doris Akol’s ineptness in tax administration
IMPOSES WHATSAPP TAX;
Museveni in the same letter directs for the imposition of heavy taxes on all internet-based phone calls except those made for educational and research purposes. “It’s like going to the library, using the encyclopedia or referring to the dictionary. These must remain free. However, olugambo [gossiping] on the social media (opinions, prejudices, insults, friendly chats) and advertisements by Google…must pay tax because we need resources to cope with the consequences of their lugambo.” Responding to the President’s directive to tax whatsapp users, renowned human rights defender Crispy Kaheru (of CEEDU) commended URA for the contempt with which they have so far responded to the President’s wish to tax OTT platform users. “It’s a matter of principle and that tax will no doubt turn out to be the most unpopular in Uganda. It spontaneously is going to attract unprecedented resistance from Ugandans because when you tax social media channel users, you are limiting access to information which is a right. You are constraining the enjoyment of freedom to access and share information.
The fact is once you buy data, you have paid a tax. You can’t tax information sharing; that will be double taxation which is contrary to the canons of fair taxation system. The President needs to be reminded that once a Ugandan pays for data, that expenditure they incurs is inherently taxed,” Kaheru said adding that the $400m additional tax revenue Museveni is looking at can’t justify the resultant deprivation of the Ugandans’ right to access and share information. To him, if the president is so much concerned about gossiping on social media, the best he can do is to embark on a moral crusade to saturate citizens with better values rather than turning URA into an instrument of oppression to constrain the free flow and exchange of information on OTT platforms like Twitter, facebook, whatsapp, viber etc.
Museveni’s earlier (2017) letter protesting the indifference with which URA sometimes acts on whistle blower information regarding tax evasion
Whereas human rights defender Kaheru is apprehensively opposed to the idea, some of the telecom sector pundits we spoke to were unanimous the big man has a point. “He is very right. In fact he delayed to realize this as the head of state because today people are making more internet calls and communicating more via internet than the conventional voice calls. The internet calls are cheaper and considered less susceptible to tapping by intelligence agencies or even criminal-minded individuals. As a result of that, more than 70% calls now are internet-based and it’s an area URA hasn’t been adequately taxing meaning that a lot of telecom revenue goes untaxed,” said a telecom sector watcher.
The same telecom analyst said its true there is a lot of connivance between URA and some big telecom players whereby they are often permitted to under declare their revenues which enables them to significantly diminish their tax liability. Making reference to a leading telecom giant that made gross revenue of Shs680bn in the first 6 months of 2017, the telecom watcher said: “It’s mostly income and corporate tax that they connive on with URA to cheat government by paying less taxes. The guys at URA will pretend to be ignorant about telecom and, with fraudulent intentions, accept all the falsehoods being told by telecom executives. Whereas VAT and excise duty is imposed on gross revenue, corporate tax is on net income [profit] which they distort by creating fictitious expenses to make their net profit look so small.
They will say we are sending this money as payment costs for consultants at the group headquarters yet in actual sense they are sending it for their shareholders.” Another analyst suggested that its high time Akol is supported to recruit industry experts in top management positions so that there is increased scrutiny on especially the fictitious costs the telecoms declare and end up paying less corporate tax. “She must have industry experts like medical doctors so that hospital don’t confuse URA; electrical and telecom engineers plus construction engineers so that guys in the real estate can have their declarations properly scrutinized. That in-depth analysis is lacking and URA needs to be resourced in that direction beyond having just accountants surrounding the CG. That will make it harder for high taxes bracket tax payers to cheat government taxes.
These days it’s common for URA Commissioners to sit in the board room and confess to telecom representatives that for us we don’t understand your industry. I think they feign this ignorance deliberately to have a defense someday when the President ever invites them to Entebbe to explain their treachery. Whereas these mere accountants can have that excuse, the industry experts won’t be able to feign that ignorance to the H/E”. The whatsapp (OTT) taxes Museveni wants imposed on telecom users is not totally unprecedented because economies like UAE already have something close to that. Because millions of Ugandans load bundles every day, Museveni’s directive once implemented will fetch a lot of tax revenue for the government though it will further squeeze the ordinary Ugandan who is already financially very constrained. A top official at the Finance Ministry said part of the nervousness by URA to impose this tax relates to the fear of the anticipated public uproar that Kaheru hints about.
M7 ANGRY NOT FOR FIRST TIME
It will be recalled this isn’t the first time Museveni is writing letters showing his profound displeasure at the ineptness of the URA boss Doris Akol. Last year he wrote to Matia Kasaija proposing an internationally-supervised forensic audit on the URA performance since Akol took office. In that letter Museveni complained about the steel subsector saying over $300m was annually being lost in uncollected taxes resulting from connivance by URA officials. Even in this latest letter, which some pundits say signals that the end for Kasaija and Akol is near, the President furiously refers to URA’s failure to adequately tax the construction industry. He gives a conservative figure of Shs810bn saying it’s what the GoU annually loses in uncollected taxes in the housing sector alone where he says “concealment of tax information has reached scandalous levels.” See more in the president’s latest letter. We also provide broader context by reproducing his earlier letter to illustrate how consistent the big man has been on this issue of URA’s inexcusable ineptness.