URA in Shs230bn Tax Evasion Scandal

Misclassification has allowed companies like Koudijs Uganda, Agrivetis Uganda Ltd, and Impact Sales Uganda Ltd to evade paying taxes, while local producers who use organic materials such as soya, sunflower, and cotton are left grappling with unfair competition.

NATIONAL | The Uganda Revenue Authority (URA) is at the centre of a brewing scandal, accused of enabling a Shs231 billion tax evasion scheme involving animal feed concentrate importers.

Over the last six years, several major importers have been exploiting tax loopholes, severely undermining the local animal feeds industry.

The core of the controversy lies in the misclassification of imported animal feed concentrates as premixes, which under the East African Community (EAC) Common External Tariff, allows importers to avoid paying the 10% import duty and 18% VAT.

This misclassification has allowed companies like Koudijs Uganda, Agrivetis Uganda Ltd, and Impact Sales Uganda Ltd to evade paying taxes, while local producers who use organic materials such as soya, sunflower, and cotton are left grappling with unfair competition.

Emmanuel Semugenyi, a tax expert, explains the gravity of the situation: “By classifying concentrates as premixes, the importers have placed themselves in a tax-free zone. This isn't just an oversight—it's smuggling, whether through negligence or deliberate action.”

Despite URA issuing demand notices to recover unpaid taxes, insiders claim top URA officials, including Commissioner General John Musinguzi, have shielded the companies from enforcement.

In an October 25, 2022 letter, Mr Musinguzi advised Koudijs Uganda that no enforcement actions would be taken against them, effectively halting the tax collection process.

Local producers, who once thrived by selling locally made animal feeds, are now on the verge of collapse. Simon Bidandi, a veteran in the industry, has been selling locally mixed feeds for over 30 years, using ingredients like silverfish and soya.

However, the influx of tax-exempted imported concentrates has decimated his business.

“Concentrates are expensive and dominate the market. We can’t compete with importers who don’t pay taxes, and we’re being pushed out,” Bidandi laments.

Aimable Mbarishimana, chairman of the Uganda Animal Feeds Manufacturers Association (UGAFMA), points to the disastrous impact this has had on the entire value chain.

“Farmers are no longer planting soya because it’s not profitable. Many local factories have shut down. The government has allowed foreign companies to dominate the market, while our local industry dies.”

However, Koudijs Uganda denies any wrongdoing.

Johan Verhoek, the company’s Sales Manager for Africa, insists they are operating within legal parameters: “We’re in close contact with URA and the relevant ministries. We pay our taxes when required. These claims of tax evasion are baseless, and we’re proud to be major contributors to Uganda’s tax revenue.”

But the controversy surrounding Koudijs deepened when the State House revenue intelligence unit recently intercepted three of their containers, citing irregularities in their imports.

Despite Verhoek’s assertions, the company is now under investigation, with URA ordered to recover Shs100 billion in unpaid taxes from Koudijs alone.

The situation has stirred nationwide debate. Local manufacturers accuse URA of failing to protect their interests, while foreign companies profit from the exploitation of tax exemptions.

“There’s no doubt that URA has enabled these illegalities to go unchecked,” argues Mbarishimana. “The law is clear—concentrates are not exempt under the Value Added Tax Act, and yet the importers have gotten away with it for years.”

In an attempt to clarify the situation, the Attorney General issued an opinion in October 2022, confirming that concentrates do not qualify as exempt supplies under the VAT Act.

However, despite this clear ruling, URA has yet to take significant action.

Responding to these allegations, Abel Kagumire, commissioner executive office operations, defended URA’s stance, explaining that the classification of concentrates is governed by the World Customs Organization and the East African Common External Tariff (CET).

He noted that URA acted in consultation with the Ministry of Finance after importers objected to paying the 10% import duty.

"It’s a policy matter handled at the East African level," Kagumire explained.

"Parliament got involved and guided on the issue, so we didn’t collect the money. We haven’t seen the Attorney General's guidance on the matter, and perhaps it was given to Parliament, but for URA, it remains a policy issue."

In response to the growing outcry, the State House Revenue Intelligence Unit stepped in, demanding URA to recover Shs231 billion from concentrate importers for the period between July 2017 and September 2022.

Additionally, they have called for immediate action to prevent further misclassification of imported concentrates.

While foreign companies like Koudijs continue to defend their actions, local producers are left to bear the brunt of the competition.

Bidandi and others call on the government to step in and support the local industry before it’s too late.

“We’re not working for ourselves anymore. We’re working for the importers and their profit margins,” says Bidandi, frustrated by the government’s inaction.

“If the government doesn’t support us, we’ll be out of business soon.”

As the scandal continues to unfold, all eyes are on URA and whether it will finally crack down on these illegal practices or allow the local animal feeds industry to collapse under the weight of unfair competition.