Why MTN is at loggerheads with URA in Shs 1.5 trillion tax stalemate

For the past five months or so, Uganda Revenue Authority (URA) has been at loggerheads with Uganda’s biggest telecommunications company, MTN.

This follows an audit carried out by SafariTech - a Kenyan company that specializes in taxation audits – that revealed a total tax liability of Shs 1.5 trillion which the revenue body now demands from MTN. The comprehensive audit followed concerns raised by President Museveni in 2023 when he warned telecoms on tax evasion.

According to the President, as of 2016, Uganda was losing approximately Shs 1.2 trillion per year, a figure that has could have doubled ever since then. The President accused telecoms of understating the number of calls made per day by half. Speaking to The Observer, a top Finance ministry official who preferred anonymity noted that whereas the President’s concerns were justified for several reasons, the audit findings are likely to have overstated MTN’s tax liability.

“Assessing Shs 1.5 trillion on one company is not reflective of the current economic standing in Uganda, even when MTN was listed amongthe biggest taxpayers for the financial year that ended in July, 2024,” said the official.

CONTEXT

Ordinarily, telecom companies in Uganda normally obtain their sales from airtime, mobile money, internet provision and SMS, among others. They operate in a highly-competitive environment and, with the over five telecommunication companies operating in the country, there is a shared access to the Ugandan market that comprises approximately 18 million people.

In 2020, telecom companies jointly contributed a total of Shs 1.1 trillion in taxes, according to the ministry of ICT and National Guidance, with MTN leading as the highest taxpayer.

The taxes normally collected from telecom companies include 30 per cent corporation tax, 12 per cent excise duty, 18 per cent Value Added Tax on airtime, internet data and $0.09 on international calls. According to the management letter issued by URA to MTN on May 23, 2024, following the comprehensive audit, it was indicated that MTN allegedly did not declare local excise duty of Shs 330.7bn, VAT of Shs 554.5bn and corporate tax of Shs 651.3bn.

WHAT NEXT?

In an event of failure to pay the taxes, insiders have intimated to The Observer that URA is likely to seize MTN’s assets in order to obtain the unpaid taxes, if no instalment payment plan is reached.

“The implications of this audit are not only diverse but also distractive to the economy in the long run,” said a top-level official from a rival telecom who preferred anonymity due to conflict of interest.

To put it into perspective, in 2021, for example, Game Discount, a prominent supermarket chain operating in Kampala, closed shop owing to huge taxes that had been imposed by the revenue body. Between 2015 and 2020, a number of telecom companies closed operations or merged due to what they called an unfair and unconducive operating investment environment characterized by horrendous taxes.

“The audit findings are, therefore, likely to open a Pandora’s box. The question is; can this lead to an untimely departure of a highly influential company, especially where it becomes impossible for it to pay the outstanding tax liabilities or reach a consensus for installment payments?” wondered the official.

However, some insiders argue that the audit of telecom companies was long overdue. This is based on the fact that internet penetration in Uganda has risen and increased data usage on internet connectivity. This means that sales made by companies like MTN, on which taxes are charged, have risen over the years.

With a significant increase in the number of smartphones in the country, it is possible that MTN could have underdeclared its sales over the audit period of 2019-2022. URA noted in its management letter that from MTN’s self-declarations, there was a variance of undeclared tax of Shs 58 billion in 2019, Shs 860.4 billion in 2020, Shs 1.1 trillion in 2021 and Shs 984.3 billion in 2022.

“Tax evasion among telecommunication companies had been rampant over the last years. This is because of significant developments in the digital economy that facilitates for easy and untraceable banking, mobile money services, instant cash payments, telephone communications, internet services, all of which are paid for but not declared to URA as sales to the company,” said the Finance ministry official.

“Further, it is difficult to trace the movements of money while using mobile money services to determine how much of it goes to the telecom company or the individuals using the services. This leaves a gap that is exploited by the companies to cheat the revenue body with undisclosed sales.”

As it stands, MTN is aggrieved with the audit findings and, according to reliable sources, has petitioned State House to have the matter resolved.

WAY FORWARD

According to Fred Muhumuza, an economist, the MTN-URA issue is straightforward.

“These are not trivial issues. MTN should engage URA and give necessary responses. MTN can also go the Tax Appeals Tribunal or even court to address the matter. I think arguing about the competence of the SafariTech is immaterial unless there is proven conflict of interest or incompetence,” he said.

A senior tax expert, who preferred anonymity due to the sensitivity of the matter, said the process, as laid out in tax laws, is for MTN to object to the assessments within 45 days.

“The objection is done with an understanding that another team under URA will review the audit findings, hold objection meetings with MTN and issue a decision either allowing the objection by setting aside the assessments or disallowing the objection and upholding the assessments,” said the expert.

“Followingly, if URA is hellbent on its position and disallows MTN’s assessment, MTN has a right to apply for Alternative Dispute Resolution at URA or file an application in the Tax Appeals Tribunal to challenge URA’s decision. With the huge amounts of money involved, there are high chances that the dispute could go on up to the last stage of tax litigation in the Supreme court.”

It remains to be seen how the matter will be solved but in general, these audit findings are likely to influence further comprehensive audits of other telecommunication companies like Airtel, Lyca Mobile, among others, in order to unearth underdeclared taxes.