Gold exporters’ plot to skip taxes foiled

OPINION

By Edward Ronald Sekyewa

Efforts by three gold refining and exporting companies to dodge taxes have been thwarted by court, granting the taxman the leeway to collect all the pending taxes from the petitioners since July 2021 to June 2023.

The three companies, Bullion Refinery, Aurnish Trading Limited and Metal Testing and Smelting Company Limited, ran to court seeking an injunction to stop Uganda Revenue Authority (URA) from collecting the 5% tax levied on gold exports.

While all other gold exporting companies in the country have complied with the requirement, the three have not paid the taxes which have accumulated into billions of shillings in arrears owed to the Government.

The suit where the three companies took URA and the Attorney General to court arose from the publication of the Mining and Mineral Regulations 2023 by the Minister of Energy and Mineral Development in the Gazette on March 1, 2023, imposing an export levy of $200 per kilogramme on processed gold with a retrospective effective date of July 1, 2021.

In their Civil Suit No. 092 of 2023, the three companies argued that the tax levied on their gold exports was contrary to the East African Community Customs Management Act.

In a ruling made on January 12, 2024 dismissing the temporary injunction, the registrar of the Civil Division of the High Court in Uganda, Simon Kintu Zirintusa, refused to grant the petitioners’ application, arguing that other companies are fully complying with their tax obligations, so should the three.

He further noted that granting an injunction against the collection of the tax would cause grave inconveniences to URA, especially when other companies in the same business are fully compliant.

Before this matter, the three companies lost a case last year when they sued the URA commissioner general, John Rujoki Musinguzi; URA customs commissioner Abel Kagumire and the URA customs manager at Entebbe Airport, Simon Esunget, for continuing the enforcement of the requirements for gold exporters.

In this particular case, the companies were seeking court to declare the three URA officials to be acting in contempt of court and to declare them unfit to hold public office. They also sought an order committing the three officials to civil prison on top of each of the officials paying sh200m as compensatory damage to the companies.

Lawyers representing the URA officials in this matter said that URA was acting within its mandate and that the court order the companies were talking about did not imply that URA was to abdicate its responsibility of regulating gold exports from Uganda.

The lawyers also disclosed that other gold exporting companies in the country that complied with the new regulations were threatening legal action against the taxman for discriminatory treatment, and that the three petitioners were only buying time for them to continue not paying the accrued arrears of the levies on gold exports.

In his ruling in that case on October 20, 2023, Justice Boniface Wamala dismissed the case with costs to the URA officials because the three companies failed to convince court that the officials were acting in contempt of court.

URA is now duty bound to collect the funds from the defaulters. By June 30, 2023, the arrears had risen to sh15b on Bullion Refinery’s bill, sh11.8b for Metal Testing and Smelting Company Limited while sh5.3b is owed by Aurnish Trading Limited, making up a total of sh32.1b before interest.

In a statement by the Kampala Associated Advocates (KAA), it was stated that “despite there being a suit challenging the legality of the Mining and Mineral Regulations 2023 (Export levy on Refined Gold), the previous interim order that was entered with the consent of the suit parties lapsed with the delivery of the temporary injunction ruling.

This implies that there is no order barring URA from enforcing the regulations and it can now go ahead and collect the taxes on gold exported from July 2021 to June 2023. KAA was representing the interests of other gold exporters who have been compliant with the regulations in this matter.

Relatedly, in September 2023, the director of Bullion Refinery, Richard Karumuna appeared before the Tax Tribunal chaired by Dr Asa Mugenyi and was ordered to pay value added tax (VAT) of sh211,863,360 and income tax of sh353,106,000 to URA.

This matter arose after URA conducted an audit of the company for the period between February 2018 and June 2019 and found out that Bullion Refinery had underdeclared its refinery charges leading to undeclared sales.

It was discovered that the company had declared refining charges of between $10- 20, which were below the industry average of $50 per kilogramme of gold.

On top of that, the URA audit discovered that the company’s financial statement indicated a loan of sh1.1b which had no supporting documentation as of June 30, 2019, forcing URA to re-characterise that as income for which the company had to pay income tax.

In his defence, Karumuna provided documents of a loan agreement that had been translated from Arabic to English with his name as the director who had signed the agreement on behalf of the borrower written as “Caromona”, a matter that triggered the Tax Tribunal to suspect forgery.

On the other hand, there were no bank documents to show how the money was channelled from Dubai to Uganda to which Karumuna responded that he used to bring in the loan money in cash whenever he travelled to Dubai, an answer that did not satisfy the Tax Tribunal.

In the end, the tribunal agreed with URA, consenting with the re-characterisation of that alleged loan as undeclared income and the loan agreement was declared null and void.

Bullion Refinery has on many occasions turned down appeals by URA to find a lasting solution to the stand-off emanating from the tax arrears and has instead unsuccessfully tried to find short-cuts to beat the taxman.

On realising that URA was unrelenting in its demand the tax arrears, Bullion formed a new outfit called Aurafino through which they tried to export 120 kilogrammes of gold out of the country, but the alert URA officials at Entebbe Airport nipped that attempt in the bud because the new outfit did not have the requisite documentation to export gold.

In October 2023, the company also lost gold worth sh2.5b, when robbers waylaid a vehicle carrying the gold from Arua in a midnight heist which was suspected to have been an insider job.

Police spokesperson Fred Enanga said the Police and military agencies mounted a search for the robbers, but no reports of recovery of the gold were made thereafter.

Bullion Refinery which also deals in diamonds, silver, platinum and palladium plus many more precious metals is a subsidiary of Bullion Group which offers other services like forwarding services, sea and air freight services, private jets, security and protection services.

Falling revenue collection in Uganda

In December 2023, the Ministry of Finance and Economic Development released a report indicating that the domestic revenue performance had hit a shortfall of sh120b and that URA had collected sh2.131 trillion in November 2023 against the expected revenue collection of sh2.251 trillion for that month. Yet for the month of October 2023, there was also a shortfall of sh600b in collected revenue, an issue that forced the Ministry of Finance permanent secretary, Ramathan Ggoobi, to summon the URA leadership for explanations. Ggoobi demanded for administrative interventions from the taxman to fill the gaps in revenue collection.

To make matters worse, December 2023 also ended with domestic revenue shortfall of sh394b where sh3.453 trillion was targeted, but the tax body only managed to collect sh3.059 trillion, a situation that has led to the exertion of pressure to URA to endeavor more in hitting its targets.

Although it posted some growth by 16.4% in the last financial year, the deficits that dogged URA in the last months of 2023 require more efforts to maximise tax collection, that is why the decision by court to allow the taxman to collect the taxes from the defaulting gold exporters could not have been any better beginning into the new year.

The writer is a journalist, researcher and consultant