According to the latest Money Laundering and Terrorism Financing Tax Crimes and Proceeds Risk Assessment Report for Uganda, tax crime is the second generator of illicit proceeds for money laundering after corruption.
The Financial Intelligence Authority (FIA) in collaboration with the Uganda Revenue Authority (URA) – the authors of the report – drew their conclusions based on the crime statistics, prosecutions and associated total recoveries from tax-related cases between 2017 and 2022.
The report sought to understand tax crimes and associated money laundering risks. The reports says that money laundering can be a means to accomplish tax evasion through a scheme of hiding assets (tax evasion engineered through money laundering). It can also work as a mechanism to launder illicit proceeds after the tax evasion crime has been committed.
Proximity to countries prone to smuggling of precious stones and metals and other tradable goods makes it easier for tax evaders and launderers to perform cross-border trading that goes on unrecorded. In addition, there are cases of undervaluation by tax evaders to dodge tax, falsify documents, under declare and conceal.
Analysis of the tax crime enforcement data indicates that between 2017 and 2020, the government handled tax crimes involving approximately Shs 255 billion ($70.8 million). During the same period, a total of 31,689 tax-related cases were investigated; 233 cases were prosecuted; and 168 cases led to conviction of 176 persons. During the same period, FIA disseminated 41 intelligence reports involving tax crimes to URA for investigation.
The report, however, indicated that despite tax crime being a major offence to money laundering in Uganda, the number of tax crime related money laundering investigations, prosecutions and convictions remain low or non-existent generally. It, therefore, recommended that there is an urgent need to pursue money laundering investigations alongside tax crime investigations to trace related proceeds, enforce recoveries and strengthen tax enforcement actions.
Identified taxpayers that are subjected to the different compliance improvement initiatives, such as audits, inspections and enforcement actions are still few in comparison to the taxpayer register and possible number of eligible taxpayers in the country.
In addition, the government should consider enactment of a law to facilitate non-conviction-based asset forfeiture/ confiscation, capacity building of all stakeholders and encourage formalization of the economy to boost tax revenue, reduce tax evasion and associated money laundering crime.
During the launch of the report in Kampala, the executive director of FIA, Samuel Were Wandera, said the report marks a significant step in strengthening the fight against tax crimes and the related issues of money laundering and terrorism financing, both of which pose serious risks to Uganda’s economic stability and financial integrity.
He added that tax crimes generate substantial illicit proceeds and evaders are constantly finding new and complex ways to conceal their gains and, therefore, the collaboration between URA and FIA alongside law enforcement and other partners is essential in effectively tackling these challenges.
“The findings provided in this report will help us develop better policies and enforcement strategies. They will also guide our risk-based approach to supervision, ensuring that resources are allocated where they are most needed in line with international standards.’’
Wandera further urged URA to build momentum in prosecuting tax crime offenders with money laundering offence added to the charge sheet since prosecution serves as a powerful deterrent, discouraging potential offenders and reinforcing public trust in the tax system.
“Holding offenders accountable also ensures that Uganda remains compliant with international frameworks such as the Financial Action Task Force recommendations, safeguarding our financial system and economy from exploitation. Prosecution, therefore, is not just about recovering lost revenue, it is about upholding justice, maintaining the integrity of our tax system and protecting Uganda’s long-term development goals,” he said.
Catherine Kyokunda, URA’s legal affairs commissioner, noted that while the tax body has established a strong legal framework, operational challenges remain, particularly in linking tax crimes to money laundering. She added that data shows that prosecutions for tax crimes have risen yet the tax-to-GDP ratio has stagnated at 13 per cent, which calls for urgent targeted actions to combat tax crimes and money laundering.
“We face significant threats, especially with value added tax, corporate income tax and PAYE tax. These challenges are excavated by trade-based money laundering, porous borders and the sophistication of companies that are of a global nature,” she said.
