Taking caution as we advance tax collections


As health, economic and political effects of the COVID-19 pandemic take their toll on African
economies, my attention is drawn to tax advancements in Uganda and Kenya regarding the
migration from the manual to digital tax stamps aimed at improving tax collection and
preventing transfer pricing or loss of critical revenue to multinational firms.
In Uganda, manufacturers through the Private Sector Foundation of Uganda (PSFU) and Uganda
Revenue Authority (URA) is currently a loggerhead over the implementation of Digital Tax
Stamps in the country.
In addition, an individual Mr. Sylvester Kamuli, has sued the URA seeking to halt the February 1,
2020 deadline for the implementation of Digital Tax Stamps because of the impact it’s bound to
have on the business community especially, manufacturers.
The transition to Digital Tax Stamps in Kenya, Tanzania, and Uganda is meant to improve the
monitoring and taxation of production and importation of excisable goods such as wine, beer,
whisky, cigarettes, and soda.
While the Digital Tax Stamp initiative seems to be welcomed by the private sector in the region,
the challenge seems to be on how it’s being implemented, and the speed of implementation or
transition. Manufacturers in the region don’t appear to be in agreement with the transition
timelines that have been set by the tax authorities because they need to make adjustments in
their production systems to accommodate the changes in tax administration. Another concern
for countries like Uganda is the controversy surrounding the implementing partner for the
digital system.
A Swiss firm SICPA was single-sourced and awarded a 3-year tender to implement the advanced
tax stamps by Uganda. However, the private sector is uncomfortable with a foreign firm
implementing digital tax stamps. According to Gideon Badagawa, the PSFU Executive
Director, there was no need to hire a foreign firm for the “simple assignment” (Source: Daily
Monitor Uganda).
He argues that the private sector feels that all the money spent on a Swiss company [SICPA]
should have remained in the country because what they are doing is not a very sophisticated
assignment. It can be done by local firms. Mr. Amos Nzeyi, the former chairman of Uganda
Manufacturers Association and CEO Crown Beverages Limited made a shocking revelation
recently. He noted that the government of Uganda intends to spend up to $101 million on
foreign firms to buy digital stamps yet the revenue target from the efforts is a paltry $13 million!
The cost of digital tax stamps has increased stamp tax in the country by 1,500% to 0.8 British
pounds per mil compared to 0.36 pounds per mil in Rwanda.
Of even great concern to Ugandan manufacturers is the report that SICPA is alleged to be
associated with a number of controversies around the world. For instance, in Switzerland, its home country, the Federal Prosecutor is investigating the firm for links to bribery allegations
as was reported by the Botswana Guardian,
Last year, Charles Nelson Finkel, the SICPA former executive vice president, was jailed for more
than 11 years for paying bribes to a government official in Brazil. In Kenya and Tanzania, the
company is accused of ‘active bribery of foreign agents’ and ‘money laundering. In Botswana,
the company is linked to Sovereign Border Solutions (SBS) – which was controversially contracted
by the Botswana Unified Revenue Services to re-scope and amend the invitation to tender.
In Rwanda, in 2017 RRA contracted Madras Security Printers for a Track and Tax solution at a
stamp price of 0.36 pounds per mill but at the close of 2019, it issued a tender for a new
supplier having revisited the required features. This saw the stamp prices rise, arising from
the limited submission of bids from prospective suppliers. Fortunately, a new tender is now in
issue and under evaluation because it’s an opportunity to review the cost to the taxpayer and
final consumer of goods but also to take precautions on which firm offers the desired service.

Rwanda has built a reputation of zero-tolerance for corruption and efficiency in the region and
needs to uphold this image. In addition, there’s a need to build internal capacity to provide the
T&T service in-country to limit the loss of revenue, otherwise, it would defeat the purpose of the
digital migration if we spent $100 million to collect $13 million.

Furthermore, we need to avoid drawbacks that could arise from a rush to implement new
digital tax policies without the thorough consultation of all key stakeholders. The business
community needs are given between 18 – 24 months to transition to new tax policies. This
allows taxpayers adequate time to secure finances, internal approvals, and adjustments in
systems and processes to be able to meet the desired tax policies.

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