UGANDA, Kampala | Real Muloodi News | Uganda Revenue Authority (URA) has announced that informants who report non-complaint taxpayers leading to the recovery of unassessed tax, will earn a whopping USh100m, according to the Tax Procedures Code (Amendment) Act, 2022.
While the practice of rewarding informants is not new to the URA, the tax authority has now instituted two reward categories for the 2022/23 financial year;
1) Reward for informants that lead to the identification of a non-compliant tax payer: A person that provides information leading to identification of unassessed tax will be paid 1 per cent of the assessed tax, or USh15m, whichever is less.
2) Reward for informants that lead to the recovery of unassessed tax: A person that provides information leading to recovery of unassessed tax will be paid 5 per cent of the recovered tax, or USh100m, whichever is less.
These measures to improve tax compliance have left many landlords who have long been under-declaring their rental income shaking in their boots.
For example, a well known method of tax evasion employed by Kampala City arcade owners is to charge tenants a certain amount of rent, but then furnish receipts for a lower amount, putting tenants in a situation where they cannot defend their true expenses to determine their taxable income.
The practice was confirmed by Mr Fred Enanga, the Uganda Police Force spokesperson, who said that the closure of more than 200 arcades in 2020 as a COVID-19 containment measure had exposed how the arcade owners have been verbally forcing their tenants to pay higher rent but issuing them receipts reflecting less payments.
“Police have nothing to do with tax collection but it is true that the lockdown enabled us to know the tax fraud which has been going on where a landlord charges rent of USh2m and gives the tenant a receipt of USh300,000,” he said.
Another widespread method of tax-evasion is to declare rental income for only a subset of properties that a landlord owns, while the income earned from the majority of properties goes undeclared all together.
This practice is landing landlords in hot water, as the Act also contains penalties for landlords that falsify business information to undervalue tax obligations. The penalty was increased from UGX.4 million to UGX.110 million for FY2022/23, upon conviction of a taxpayer for making false or misleading statements to URA.
URA has already employed technology to identify landlords with undeclared properties who are not being honest about their rental income earnings, with the launch of the Rental Tax Compliance System (rTCS) in April of this year.
rTCS integrates data between government agencies such as Ministry of Lands, Kampala Capital City Authority (KCCA), National Water and Sewerage Corporation (NWSC), among others, to collectively determine property ownership, property type, tax obligations, and tax history for any individual or corporation in a single data repository.
However, with URA’s announcement of the increased whistleblower incentives, landlords are also fearful their own tenants will turn them in.
Mr Robert Wamala Lumanyika, the URA acting manager public and corporate affairs, says rewarding of whistleblowers seeks to enhance voluntary compliance, which in the process will help URA to collect government’s due share from non-compliant taxpayers.
Mr Lumanyika says during the 2021/22 financial year, more than 126 whistleblower cases were handled, from which more than USh133.37b was assessed and recovered.
This number is expected to grow this year, thanks to URA’s bolstered whistleblower incentives.
The Commissioner General of URA, John R. Musinguzi, says it’s only a matter of time until URA catches up with landlords who are under-declaring rental income, and when they do, the result will be long, protracted and expensive audits on top of the fines and penalties they will be subject to.
What Can Landlord’s Do?
Voluntary Disclosure
Landlords who have been cheating the system can take action before the taxman pays them a visit, through voluntary disclosure.
Voluntary disclosure occurs where a taxpayer voluntarily discloses what ought to have been disclosed but was not declared or partially declared before being prompted by any action or threat of action on the issue by URA, such as tax investigation or request for tax information.
Once you agree to pay the outstanding unpaid tax, you won’t be required to pay any interests/fine due to URA.
“The practice at Uganda Revenue Authority is to audit 3 years or less, however in cases where there has been tax fraud, we are forced to investigate backwards from there,” says Mr Musinguzi.
“On part of the taxpayer, if you know there are some tax issues that have not gone right, utilise the voluntary disclosure window – come on your own before any prompting from URA, and declare any tax matter that has not been going right in your organisation,” he adds.
For VAT Registered Landlords, Provide EFRIS Receipts to all Tenants
Not only could landlords face stiff penalties for providing false information about their rental income to the URA, those landlords who are VAT registered but have not implemented URA’s Electronic Fiscal Receipting and Invoicing Solution (EFRIS), or who are not issuing EFRIS receipts to all of their tenants, could face additional penalties.
EFRIS is mandatory for all VAT taxpayers, including all businesses with an annual turnover of USh150m and above.
As of July 1, failure to use EFRIS will require an offending taxpayer to pay 1,500 currency points or imprisonment not exceeding 10 years or both.
Each currency point translates into USh20,000, which means that such an offence committed under EFRIS will attract USh30m.
Therefore, now is the time to implement EFRIS for all of your tenants, before they run to the taxman to report that you are not furnishing them with EFRIS receipts for the correct amount that they are paying.
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