BUSTED: Cross-Border Smuggling, Corrupt Customs Officials Hurting Domestic Revenue Collection

By PATRICK JARAMOGI

KAMPALA-SHIFTMEDIA– Many development projects have been lined up for implementation in the FY 2021/2022, but issues of low revenue collections remain a ‘thorn in flesh’ regarding the achievements of these projects.

The overall resource envelope for FY 2021/2022 is projected at Ushs 40.91 trillion, with Ushs 37.26 trillion expected from domestic revenue and Ushs 3.65 trillion from external resources.

President Yoweri Museveni has highlighted 7 key areas of focus including Defence and Security, Railways, Electricity, Health, Education, Wealth Creation, and salary increase for scientists and judicial officers.

But analysts believe given the low domestic resource collection due to factors such as corruption, tax evasion and collusion, these aligned key areas may be a stiff hill to climb.

The National Budget Framework Paper 2021/2022 recently approved by parliament shows that Ushs20.9 trillion ($5.66 billion) will go to debt servicing, against total domestic revenue that is projected at only Ush21.69 trillion ($5.88 billion).

Thus 96.7 per cent of Uganda’s total domestic revenue will be spent on debt servicing. But why aren’t domestic revenue collection not adding up? Issues like Illicit Financial Flows (IFFs) are recognized as a major challenge to creating and sustaining a sound revenue base in the country.

According to the 2018 UNECA study on the global governance architecture for combating illicit financial flows the amount of IFFs from Africa are estimated to involve sums of upwards of $100 billion per year. IFFs, therefore, constitute a major source of domestic resource leakage, which drains foreign exchange, reduces tax collections, restricts foreign investments, and worsens poverty in the poorest developing countries.

This limits the amount of resources available to finance social sectors especially health, education, water and sanitation. This problem is not limited to the EAC but stretches to affect the entire African continent.

 

What is being done?

The South Eastern Africa Trade Information and Negotiation Institute (SEATINI) Uganda has been at the clear front in highlighting the issues of IFFs, the animal that is affecting domestic revenue collections.

On Friday, SEATINI  Uganda organized a multi-stakeholder dialogue on Tax and IFFs under the theme “Stemming Illicit Financial Flows through Regional Tax Harmonization in the East African Community (EAC).”

But among the issues that came included the lack of harmonised tax laws in the East African Community, Non-Tarif Barriers (NTBs), smuggling across the various porous borders, corrupt customs officials among others.

Given the increase in inflation from 3.6%, recorded in December to 3.7% recorded under the Performance Economy Report for January 2021, it will only get worse before it can get better. M/s Flavia Busingye the Principle Customs Officer at the Directorate of Customs, East African Community however notes that not all is lost in terms of revamping domestic revenue collection.

Addressing the participants at Sheraton Hotel via zoom, Busingye said the EAC Domestic Tax Harmonisation Policy is one of the key aspects being considered to harness domestic revenue growth.

“A harmonised Tax in the region will create a level playing field in terms of attracting investments in the region,” said Busingye. She said the harmonised tax regime will also reduce on inter-partner state competition for resources. “This will prevent all regions from reducing taxes,” she said.

Experts have noted that reduced tax revenues is the reason for Uganda’s massive borrowing, coupled with a liturgy of debt payment stress. Uganda’s public debt increased from 43.6% in 2019 to 47% in 2020 and projected at 48% in 2021, a rather dreaded level of the 50% value of the economy (GDP) recommended by the International Monetary Fund (IMF).

According to the Bank of Uganda Governor Prof. Tumusiime Mutebile, Uganda’s debt so far is Ushs86 trillion, with China demanding Uganda $3 billion in bilateral loans.

Corruption fueling low revenue collections
Lack of harmonised tax laws in the region coupled with Non-Tariff Barriers, corrupt and rude customs officials has fueled smuggling at the border points such as Busia and Malaba further hampering revenue collections.

Mariam Babu chairperson Busia Women Cross Border Traders Cooperative, the lady who has seen it all has no kind words for some custom officials.

Addressing the gathering, Babu decried the high rate of corruption instituted by customs officials on informal cross border women traders.

“It is not out wish as cross border women traders to traverse the bushes while bringing in our merchandise, but we are faced with a lot of challenges,” said Babu.

She said some merchandise from across Kenya are far much cheaper compared to products from Uganda. “Items like salt, baking flour, cooking oil from Kenya is more affordable due to low taxes on the other side,” she said.

Babu said issues of monopolization of imports for a selected few individuals need to be addressed.

She said Covid19 lockdown further compounded the smuggling at the border. “The border was locked, yet we had to put food on the table. We had to use the bushes to survive,” said Babu.

She called upon Uganda Revenue Authority (URA) to sensitize their customs official regarding how to handle ladies at the customs.

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“I was harassed in the bush. These Ugandan custom guys demand bribes from cross-border women bringing in merchandise from Kenya across the porous borders. This is daily income in form of corruption for them,” explained Babu.

Anthony Maraka the Senior Economist Tax Policy Department, Ministry of Finance and Economic Planning however said effort is underway to sensitize the cross border traders on the need to use the official customs route when importing goods from Kenya.

Sam Musige Principle Commercial Officer Ministry of East African Community Affairs said efforts are underway to harmonize the tax laws in East Africa so as to ease cross border trade.