MTN Uganda and URA Tax Row

Wednesday, 31st August, 2011

A whistleblower and the Uganda Revenue Authority continue to wrangle over how much he should be paid for exposing tax avoidance.

At the heart of the dispute is the whistleblower’s contention that URA should have paid him sh490m and not sh219m.

About three years ago, the whistleblower notified the revenue body of what he called a misclassification by MTN that led to unpaid taxes of sh4.8b.

The tax claims were for radio/TV transmission apparatus imported into Uganda from 2006 to 2007 which, according to available information, were declared as a new set of equipment, yet they were spare parts that attracted value added tax (VAT).

After several discussions, URA directed MTN to pay the taxes.

The then commissioner for tax investigations, Mike Chibita, now a Judge, wrote a conclusive letter to MTN after what he said had been “a long-standing issue for which several interpretations have been sought and classifications agreed on.”

"We are, therefore, advising you to settle the outstanding amount of sh4.9b without further delay," said Chibita in his letter dated June 30, 2008.

MTN paid the sh4.8b then sought the interpretation of the World Customs Organisation (WCO). They stated that should WCO rule in their favour, URA would refund some of the money.

After WCO ruled in favour of MTN, URA wrote to the firm’s tax consultants in September 2008 informing them it was going refund sh2.9b.

The money was thereafter refunded.

But questions are now being raised as to whether the world customs boady made any ruling on the issue.

The whistleblower further argues that it was not necessity to refer the matter to the WCO as the tariff book is clear on the matter.

According to the tariff book, only equipment imported after June 2007 pays 10% after the classification tariff was revised from 25% to 10% by the World Customs Organisation.

Available information also indicates that when MTN was first assessed before 2007, the tax liability was at 25% under the then tariff structure of equipment classified as parts.

"It’s important to note that the said equipment was imported and assessed in May 2007 when the said items attracted a tax liability of 25%."

"Later, when the WCO regulation came into force in 2007, it changed and stipulated that the said items would attract a tax liability of 10%," read the letter from the whistleblower’s lawyer.

Also while MTN in a communiqué published on August 5, 2011 only acknowledges the 2007 tax dispute, the whistleblower provided another set of customs entries that he said reflected unpaid sh12.8b tax liability.

MTN chief Themba Khumalo, denied the tax avoidance claims. He said the whole saga was subject to different interpretations, adding that the matter was closed.

"We sought a third party and by virtue of URA agreeing the new position, it is understood that they probably understood where we were coming from," said Khumalo.

Khumalo said MTN is a global player that meets its tax obligations and spends money to hire external auditors to handle their tax matters.

URA corporate affairs manager Paul Kyeyune, said since the matter was in court, it was up to URA and the whistleblower to prove their case.

"It has been a protracted thing and I am not comfortable discussing it," said Kyeyune.

Kyeyune’s September 11, 2008 letter as the then acting assistant commissioner, public and corporate affairs, stated that URA had established a tax liability of sh2.2b and the informant’s 10% reward was sh219m.

Feeling that his efforts at leaking the tax breach were not rewarded according to the law, and that the Government would lose money, the whistleblower later took the matter to the Inspectorate of Government (IGG).

But he claims his file at the IGG’s office was closed without any investigations. He was also not given any reason why the case was folded without a probe.

In May 8, 2009, URA Commissioner General in a letter threatened to invoke provisions of section 203 of the East African Community Customs Management Act after stating that her communication had concluded the discussions.

The whistleblower says they had provided two sets of information in respect of the equipment imported in May 2008 by MTN, which was different from the first information on the 2007 imports.

Also, the logistics firm handling the importation of the equipment had on March 27, 2007 written to the commissioner customs and excise department to classify the incoming equipment as "plant and machinery for continued network roll out prior to their arrival."

By David Mugabe: The New Vision Newspaper