2014 G20 SUMMIT – STRENGTHENING TAX SYSTEMS.

Between 15th - 16th November 2014, the G20-leaders’ summit took place in Brisbane, Australia. The G20 agenda focused on growth and resilience with priorities among others of financial regulation, Tax and Trade.

The G20’s record in reforming the international financial system and taxation regulation is a constructive and sustainable force in the international governance space and by addressing the current weaknesses in the global financial systems such as taxation reforms and putting forward new reform agendas in particular the policy perspective reforms such as BEPS (Base Erosion and Profit splitting), Tax avoidance, and Automatic exchange of information, the G20 are working towards helping the developing countries improve on their corporate tax revenues. Below is a discussion of the opportunities and challenges for Uganda.

Automatic Exchange of Information.

The exchange of tax information provides significant benefits for Uganda that is improving transparency, lifting voluntary compliance, provision of timely Intelligence information on the tax affairs of the residents. At the summit a common mantra of “No representation, no taxation” was discussed that is a country has no moral right to tax their citizens if they don’t adequately represent the interests of their citizens and on contrary that “no representation, without taxation, implying that it is essential that there is a sound and effective tax system that is capable of supporting a well-functioning government that can serve its citizens.

Uganda faces considerable challenges in implementing the standard especially with the classical nature of the tax system. Our administration is still to a greater percentage paper based and transitioning to electronic platforms requires substantial work and time, according to the World Bank Doing Business 2015 data, Uganda ranked 150 out of 189 economies for example it was established that it takes five (5) days to Obtain a Tax Identification Number (TIN) and Register for taxes at the Uganda Revenue Authority.

Tax Base Erosion and Profit splitting.

The 2014/2015 tax amendments point to the fact that Uganda is working towards building the tax base. However the diverse and unique circumstances of the operations of multinationals imply that Ugandan tax administration has a duty to defend its tax base against erosion.

BEPS such as transfer pricing and avoidance of permanent establishments through aggressive tax planning as well as excessive financial payments or thin capitalization are areas of concern for developing countries that were discussed at the summit.

Sections 64 & 79 of the Income Tax Act, elaborate circumstances under which income is deemed to have been split and sourced however with the digitalization of the economy, The tax environment is changing and the traditional source and residence rules are becoming obsolete.

The summit proposed a new country by country reporting template that would require MNEs to report to tax authorities on their activities by country in a standardized template and this would enable the tax authorities to conduct high level transfer pricing assessment.

However, the challenge for Uganda is the inadequate information about the operations of the multinational and even where information is made available, the capacity to efficiently analyze and act on the information through the domestic legal frame work is often limited.

Way forward

Uganda Revenue Authority needs to continuously improve and modernize the IT infrastructure and also ensure a degree of compatibility with systems in other countries in order to benefit from the automatic exchange of information program.

There is a need for capacity building for the tax administrators especially for the digital economy as this will improve the ability to build sustainable capacity that will handle these aggressive tax planning methods. 

Kyambadde Andrew  M.