Traders in Kikuubo, Uganda. Uganda Revenue Authority, banks express
concern that businesses prefer transacting in cash rather than use the
banking system. PHOTO | FILE
By BERNARD BUSUULWA
In Summary
- The stronger revenue collection measures adopted by the Uganda Revenue Authority last year have scared several businesses and inspired elusive tactics that include accumulation of substantial cash in their premises, a trend that has affected tax collections and growth of bank deposits while undermining local production, experts say.
- The practice seems common among small and medium sized taxpayers, The EastAfrican has learnt.
- Increased cases of huge cash stocks held by some businesses have resulted in frequent cash payments to suppliers and other parties, growing use of mobile money services for execution of financial transactions and purchase of physical goods, sources claim.
The stronger revenue collection measures adopted by the
Uganda Revenue Authority last year have scared several businesses and
inspired elusive tactics that include accumulation of substantial cash
in their premises, a trend that has affected tax collections and growth
of bank deposits while undermining local production, experts say.
Whereas data on the number of businesses engaged in this
practice and the amount of money involved was not available, key sources
in URA and in banks expressed concern that businesses are preferring to
transact in cash rather than use the banking system.
The practice seems common among small and medium sized taxpayers, The EastAfrican has learnt.
Stiff measures dominated by the use of agency notices — a legal
option that allows URA to recover outstanding taxes from stubborn
taxpayers through blocking their bank accounts and attaching available
funds till the tax liabilities are fully cleared — have been cited as a
possible key motivator for businesses to shun bank deposits in order to
escape the tax net.
The use of agency notices against defaulting taxpayers is often
preceded by numerous reminders from the tax agency to pay outstanding
taxes before the close of the financial year. Other punitive actions
include shutting down defaulting businesses, confiscating cargo
containers and prosecution of errant taxpayers.
Increased cases of huge cash stocks held by some businesses have
resulted in frequent cash payments to suppliers and other parties,
growing use of mobile money services for execution of financial
transactions and purchase of physical goods, sources claim.
Fears of other prying eyes
Though some businesses have been hit by the hard times, as
demonstrated by rising loan and tax default levels, other firms with
long experience in the informal sector are still coming to terms with
mounting enforcement pressures by Uganda’s taxman leading to poor
compliance habits, observers say.
The flight from banks to reliance on the risky option of keeping
hard cash is attributed to fears of other prying eyes like the
Financial Intelligence Authority (FIA). According to Inspector General
of Government Irene Mulyagonja, the corrupt are hiding their money in
real estate.
A Bank of Uganda directive that all money transactions above
Ush20 million ($5,875) be transacted by cheque and a related requirement
that for a purchase of property above Ush50 million ($14,688), the
source of money be declared, have all gone unheeded.
Widespread investments in idle, physical assets deprives the
economy of valuable resources needed to support viable productive
ventures, particularly in the services sector by keeping interest rates
high — a scenario that amounts to limited economic growth, economists
argue.
Consequently, revenue collections have suffered in recent months
while banks have experienced slower deposit growth, a challenge
reflected in aggressive deposit promotion campaigns carried out by
leading banks since March.
“Stringent enforcement actions implemented by URA have
discouraged many businesses from depositing cash in banks. Some business
people are also buying building materials like cement in order to
conserve their cash resources. This has resulted in increased cases of
people avoiding payment of tax obligations while leaving the burden to a
few, rising stocks of hard cash held by traders and fewer cash deposits
mobilised by banks,” said an external auditor at KSK Associates.
Revenue collection
Total revenue collections for the first nine months of 2015/16
stood at Ush8,139.06 billion ($2 billion) a deficit of Ush194.62 billion
($57.9 million), an outcome largely blamed on negative economic
conditions and the side effects of the General Election
For example, Pay As You Earn (PAYE) returns recorded a shortfall
of Ush19 billion ($5.7 million) between July 2015 and March due to weak
cash flow in the telecommunications sector and a slowdown in business
activity the oil and gas and banking sectors, URA data showed.
Financial analysts claim the overall tax revenue deficit rose to
Ush300 billion ($88 million) last month; a factor that has put pressure
on the taxman to bridge the revenue gap with less than a month left to
the close of this financial year.
Total deposits held by Ugandan commercial banks grew by 12.1 per
cent in 2015 compared with 14.9 per cent growth posted in 2014, latest
Bank of Uganda data shows. Shilling deposits increased by 1.8 per cent
to Ush8.52 trillion ($2.5 billion) in 2015 compared with a 13.8 per cent
growth during the previous year.
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