URA introduces smart gate to combat trade fraud at border points

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Uganda Revenue Authority (URA) has revealed that it will soon introduce smart gate, an automated self-service border control system to combat trade fraud including under and over-declaration of imports and exports.

The gates are in addition to other measures in place such as cargo digital scanners, bar code readers and regional electronic cargo tracking systems used to fight fraud at the border points.

Baggage scanner at Busia border

Smart Gate uses facial recognition technology to verify the traveler’s identity against the data stored in the chip in their biometric passport, as well as checking against immigration databases.

Abel Kagumire, the commissioner for Customers at URA said these Smart Gates have been procured and they will soon be installed at the Busia border point and Busitema.

“We are doing a regional electronic cargo tracking system. We fix what we call electronic seals on a truck and we monitor it. We have tried our level best to try to curb the criminalities. We have barcode readers. We are going into smart gates. They capture all the information including truck number and container number,” he said.

While URA collected Shs 6 trillion in revenue from customs last year, the tax body believes that with the help of a regional electronic cargo tracking system, they will collect Shs 9 trillion in the current financial year.

URA indicates that the country’s tax register has about 3.3 million taxpayers and 70% are in the formal sector but many eligible taxpayers in the informal sector don’t pay taxes.

Trade fraud can be executed through various ways including money laundering, smuggling but according to Global Financial Integrity; trade mis-invoicing has proved to be the most commonly used method by the business community to evade taxes

Trade mis-invoicing is the deliberate falsification of the value, volume or and type of commodity in the commercial transaction of goods or services by at least one party to the transaction. The culprits knowingly submit to the authorities an invoice which is overstated or understated.

In 2018, URA launched the cargo digital scanners on various inland border points in the country in a bid to combat fraud including under and over-declaration of goods entering and leaving the country.

Cargo Scanner

The scanners were installed at some of the major border points including Busia, Malaba, Mutukula, Elegu, Entebbe, Mirama Hills and Katuna. The government has so far installed 20 digital scanners across the major border points.

Peter Gikwiyakare, the acting Customs Regional Manager of Eastern Region, said since the introduction of the digital scanners, there has been a lot of improvement not only in revenue mobilisation but also in combating terrorism, trade fraud, human trafficking, and drug trafficking among others.

“Currently, all imports are scanned at the various border points. The digital scanners ensure that what is declared on import and export documents corresponds with what is being carried in the containers. In this regard scanners have helped to fight fraud at the border points,” he said.

Scanners have advanced X-ray and non-intrusive technology that can detect contraband, illegal weapons, or any other dangerous objects. They are connected to the main system at the URA headquarters where each and everything that enters the country is well monitored.

On average, URA records about 500 trucks through the Busia border point.

In 2021/22, the authority raised 283 alerts regarding trade fraud, out of which the authority collected over Shs 4 billion from this border point. In the financial year 2022/23, it registered 525 alerts, out of which Shs 9 billion was raised.

Inside mobile scanner

With such measures, URA’s revenue collection has shot up. Revenue performance brief report for July –September financial year 2022/23, the authority realized Shs 11 billion per scanner. In the last financial year, the authority collected Shs 350 billion from the scanners which is a good development towards revenue mobilisation.

Despite the government’s decision to install digital cargo scanners at major border points to curb the under and declaring of goods, traders at the Busia border protested unfair charges by the URA officials.

The unfair charges have led to the under-declaration of the value of goods to reduce the high-Cost Insure and Freight (CIF).

A wholesale trader dealing in electronics at Busia who preferred not to be named to freely speak on the matter said he has on several occasions under-declared his goods in the presence of the scanners claiming that URA cheats traders using an “unfair” pricing system.

“Some traders are forced to abandon their goods in warehouses because of high taxes,” he said.

He said importers sometimes connive with clearing agents to dodge taxes at the border points because they believe that there is nothing they benefit from the scanners apart from unfair treatment.

Global Financial Integrity Report 2014 indicates that import over-invoicing in Uganda increased significantly from 2002-2011. The report stated that this would ruin the country’s economy if left unchecked.

Abdallah Salim, another wholesaler dealing in cement at Busia said although digital scanners are doing a great job in combating trade mis-invoicing, the machines are not efficient.

“These machines detect fake goods but also they favor URA and that is why some traders bypass the system,” he said.

Mobile scanner at Busia border point

Andrew Ddumba, a clearing agent who doubles as the director at Raw Multilines Limited said URA system prices are still unclear.

He said there is a conflict between the prices traders are buying things at and what the authority uses. If the trader is paying more, that means the price of goods will be high hence affecting the end user.

“URA needs to engage the bigger fraternity on the world pricing and standard. Let’s be specific. Do you know what URA agents do at that Internal Container Depot? They Google the price,” he said.

He said digital scanners have registered success stories but they only help the taxmen in their processes, not the traders.

According to the Global Financial Integrity Report 2018, Uganda lost approximately 18% of total trade from 2006-2015 to trade mis-invoicing. Trade mis-invoicing is the act of conniving between importers and exporters to misdeclare the value of shipments.

This can also occur in services such as accounting or IT can also be subject to mispricing.

Robert Ssuuna, a tax, trade and investment consultant said the fight against trade mis-invoicing and other trade frauds goes beyond the use of scanners.

“The scanners can help to identify the actual commodities that are being declared but there are many mechanisms that can be used beyond the scanners to track down the perpetrators of mis-invoicing,” he said.

With Uganda estimated to lose about Shs 2 trillion to Illicit Financial Flows (IFFs) each year, it is evident the country is one of the victims of trade fraud.

Ssuuna said the fight against trade fraud requires a lot of investment in building the capacity of revenue officers, and infrastructure at the border points among others.

Kagumire said there is inter-agency cooperation among customs authorities, tax authorities and other agencies in availing of information-sharing which is assisting them to fight the vice.

Kagumire explained that the primary method used in the valuation of goods imported is the use of the transaction value.

“Transaction value is how (the price) you bought your goods. URA will rely on your invoice value to determine the value. URA adds transportation costs and Insurance. Let us take for instance goods say at $ 20,000 and transported by water to Mombasa from China; the transport cost (freight of say $ 3000) is added. To this, we add the Insurance of say $ 1000. This gives us a (Cost+Insurance+Freight) value of $ 24000,” he said.

To get to the total taxes payable by an importer under method one, he said they get the total value CIF and apply the applicable tax rates (% of Import Duty, VAT, Excise Duty, Withholding tax depending on one’s compliance levels and infrastructure levy.

Transaction value method one is the primary method of valuation. To move to any other method, this method must be fully satisfied.

In the event that one of the transaction documents is unavailable or problematic, alternative methods are used for instance identical goods.

A car entering through a unit scanner at Busia border

Gikwiyakare stated that some of the imports that are commonly under-declared at Busia border point include garments, tiles, hardware items, and motor vehicle spares among others and those that are over-declared include almost all export goods.

Gikwiyakare notes that although some traders use illegal border points, the scanners have done a great job not only in combating trade mis-invoicing but also reducing smuggling and other trade frauds at the border point.

“The regular power outage at the border region is one of the biggest challenges affecting the operation of these scanners because when it goes off, a lot of time is taken,” he said.

Trade fraud is a global challenge that has damaged tax revenue of developing countries globally.

This article was produced by The Nile Post as part of Wealth of Nations, a media skills capacity development programme implemented in partnership with the African Centre for Media Excellence (ACME).

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