• Thu. Sep 21st, 2023

Three Wellex Hardware Indian Directors Convicted, then Released, for Tax Fraud as URA Cracks Down

UGANDA, Kololo | Real Muloodi News | In a significant crackdown on tax fraud, three Indian directors of Wellex Hardware Limited in Nansana have been convicted by the Anti-Corruption Court in Kololo.

The company’s directors Jigar Chandarana, 44, and Jitendra Sorathiya, 41, along with their 25-year-old accountant, Ronak Moradiya Ghanshyambhai, were presented last week before the Court. They faced five charges related to the creation and distribution of false invoices, resulting in substantial fiscal harm to the government of Uganda.

In response to the five charges, which included making fraudulent statements to a tax official—a violation of Section 58(1)(a) of the Tax Procedures Code Act, 2014—the trio pled guilty.

Each of the accused directors were subsequently found guilty and received a sentence of either a USh20,000,000 fine or five years imprisonment in default. They opted to pay the fine, and were subsequently released.

As part of the legal proceedings, URA’s lawyers successfully secured USh102,878,055 in taxes, which Wellex Hardware Limited has agreed to pay in full as assessed.

Background of the Case

The investigation into Wellex Hardware Limited’s tax affairs began in 2022 when URA received intelligence about an Indian businessman suspected of trading tax invoices among different VAT-registered companies.

Wellex Hardware. Image source: The Capital Times Uganda

It was revealed that the Wellex Hardware directors were the masterminds behind this syndicate.

They made sales to clients but also generated and sold numerous fake tax invoices for a commission. These fraudulent invoices were declared as output VAT between 2018 and 2022 until URA’s tax investigations team put an end to their criminal activities.

Among the beneficiaries of this tax crime syndicate was China Railway No.3 Engineering Group Ltd (CR3), a subsidiary of China Railway Group Limited, one of the world’s largest construction enterprises.

CR3, listed on the Shanghai and Hong Kong stock exchanges and ranked among the Fortune Global 500, claimed input VAT of USh211,869,259 based on fictitious purchases amounting to USh1,117,051,439.

These actions caused significant revenue loss for the government of Uganda.

Detrimental Impacts to the Economy

Denis Kugonza, the URA Commissioner of Tax Investigations, has repeatedly urged taxpayers to be vigilant and avoid dealing with unscrupulous individuals involved in tax fraud schemes.

Engaging in such activities not only harms unsuspecting taxpayers but also has detrimental effects on the entire economy.

He encourages taxpayers with outstanding tax liabilities to fulfil their obligations before the end of the current financial year, 2022-2023.

Kugonza explains that tax fraud occurs when businesses or individuals intentionally provide false information on tax returns to reduce tax liability.

One prevalent tax scam URA is combatting is invoice trading, also known as missing trader fraud. In this scheme, companies issue invoices without engaging in any actual business to manipulate VAT liabilities, increase input VAT claims, and decrease their overall tax liability.

Under Section 62H(c) of the Tax Procedures Code (Amendment) Act, 2022, making false or misleading statements in the information return is a criminal offence.

Upon conviction, the penalty can be a fine not exceeding 2,500 currency points for each day of default or imprisonment for a maximum of ten years or both. Each currency point amounts to USh20,000.

To register for VAT, taxpayers must have a fixed place of abode and maintain proper accounting records related to their business activities.

If taxable supplies exceed USh37.5 million (exclusive of VAT) within the past three calendar months, immediate VAT registration is required.

Currently, all VAT-registered taxpayers are mandated to issue invoices and receipt online through the Electronic Fiscal Receipting and Invoicing Solution (EFRIS) to benefit from the system’s advantages.

Taxpayers are advised to actively engage in their businesses, avoid relying solely on consultants or accountants, minimise cash transactions, and conduct transactions through banks to ensure clear verification.


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