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OPINION

By Joshua Kato

In the complex world of taxation, voluntary disclosure emerges as a powerful tool that fosters transparency and co-operation between taxpayers and tax authorities.

Uganda is a member of the Organisation for Economic Cooperation and Development (OECD); a global forum whose key strategies include the automatic exchange of information globally. This tool allows member states obtain details of undisclosed income from treaty partners and to enforce assessment, collection of taxes and also prosecute offenders.

A voluntary disclosure is a notification of an offence. It is a proactive initiative taken by taxpayers to voluntarily report any errors, omissions or discrepancies in their tax filings. It allows taxpayers to put right their errors and thus to avoid liability for a fiscal crime. 

To prevent a penalty charge, taxpayers should fulfil the relevant tax obligation and at the same time submit a voluntary disclosure letter. 

Uganda recognises the importance of voluntary disclosure in fostering a co-operative tax environment and also to enable the taxpayers to return to full compliant status with respect to legal obligations. On July 16, 2020, URA issued a notice on voluntary tax disclosure. It highlights Tax Procedures Code Act (the “TPCA”) Section 66(1a) provisions that “a taxpayer who voluntarily discloses any tax that should have been declared to the commissioner, may enter into an agreement with the commissioner to pay the outstanding unpaid tax and that person will not be required to pay any interest or fine due”.

For so long, especially before the introduction of EFRIS, taxpayers were so much engaged in tax fraud activities like issuance and purchase of fictitious invoices or fake invoice to claim input tax, misrepresentation of the loan portfolio, for example, claim to have borrowed money and claim interest, misrepresentation of overseas entities in domestic transactions, abuse of tax identification numbers and many other activities.

Voluntary means acting of one’s own free will without being prompted by any threat or URA actions such as; request for tax information, a tax advisory letter, a tax health check/review, a notice of audit, a tax query or compliance visit or initiation of a tax investigation. The taxpayer goes ahead to voluntarily disclose what ought to have been disclosed, but was not declared or partially declared. This is done in writing, duly signed by the taxpayer and be accompanied by evidence of relevant omissions and proof of payment of the principal tax relating to the disclosure.

The disclosure must be complete and accurate highlighting any previous inaccuracies, incomplete or non-disclosure of tax.

Voluntary disclosure also covers persons engaged in income generating activities who are not yet registered or whose registration details are inaccurate. Those who voluntarily register for taxes can apply and will be required to pay only the principal tax due for the period of their noncompliance. Voluntary disclosure covers penalties and interest under the different laws like the Income Tax Act. Cap 340, the Value Added Tax Act. Cap 349, the Excise Duty Act, 2014, the Stamp Duty Act, 2014, the Lotteries & Gaming Act, 2016, the Tax Procedures Code Act, 2014.

The voluntary disclosure system in a win-win game for both the taxpayers and the URA as it spares the taxpayer from facing punitive measures, thus preserving financial resources. It also leads to improved compliance reputation as it showcases a commitment to compliance and ethical business practices. This can enhance the taxpayer’s reputation, contributing to better relationships with stakeholders and potential partners. It leads to reduced litigation risks by proactively addressing discrepancies minimises the chances of escalating issues that could lead to prolonged and costly legal battles.

To the taxman, this procedure aids in enhanced revenue collection as it facilitates a smoother tax collection process. The taxman is able to recover owed taxes promptly without investing extensive resources in audits and investigations. It also helps the taxman in resource optimisation by allocating resources more efficiently by focusing on high-risk areas rather than conducting exhaustive audits.

Voluntary disclosure fosters a culture of trust and co-operation between taxpayers and tax authorities. This collaborative approach promotes a healthier tax ecosystem, where compliance is viewed as a shared responsibility. Therefore, voluntary disclosure in taxation is not merely a legal obligation, but a strategic choice that can significantly impact the success and reputation of businesses. It reflects a commitment to ethical business practices and responsible citizenship.

The writer is a chartered tax accountant and advisor