The Taxman navigating financial reconciliation for gold industry stability
Kampala, Uganda | By Michael Wandati | In a groundbreaking development, the Uganda Revenue Authority (URA) has clinched a significant victory in a legal battle with three prominent gold refineries and exporting companies. The High Court ruling in Kampala declared that URA had taken substantial steps toward compliance with earlier court orders, absolving the tax authority of allegations of contempt.
The court’s decision marks a pivotal moment for URA, reinforcing its commitment to enforcing tax regulations and ensuring compliance within the gold export sector.
The three companies involved – Bullion Refinery Ltd, Aurnish Trading Limited, and Metal Testing and Smelting Company Limited – had taken legal action against URA, accusing it of disregarding court orders issued on April 4, 2023. The companies contended that despite the court’s directives, URA continued to issue assessments, compelling them to pay export levies.
URA constructive talks with gold companies post-court victory
With the High Court’s verdict in URA’s favor, a window of opportunity has opened for constructive discussions between the tax authority and the executives of the gold refineries and exporters.
Simon Esunget, the Acting Manager of Customs at Entebbe, has emphasized the urgent need to chart a way forward on the payment of arrears and to facilitate the companies in meeting their tax obligations.
Mr. Esunget explained that, in accordance with regulations, URA computed tax arrears for all gold exported from July 1, 2021, until March 1, 2023. Demand notices were issued to the respective gold exporters, some of whom expressed readiness to comply by making partial payments.
However, legal challenges were mounted by the trio of gold export companies, contesting the legality of the statutory instrument and obtaining a court order.
Mr. Andrew Mahaka, the director of GREDA and representative of the gold dealers, acknowledged the unfortunate events that transpired after the signing of the Memorandum of Understanding (MoU) with URA. He urged URA to engage all industry players, reach a collective agreement, and commit to moving the industry forward.
“I want to acknowledge and apologize for the unfortunate series of events that occurred after the MoU we signed with you. But I want to assure you that the stakeholders I am representing have been operating in good faith, are looking to streamline the processes, and are ready to make payments.”
Mr. Andrew Mahaka explained.
URA’s gold export directive reshapes industry dynamics
Meanwhile, in a bold move, the Uganda Revenue Authority (URA) has issued a directive that has garnered positive reactions from key stakeholders in the country’s gold industry. The directive, announced on January 28, signals a significant shift in the regulation of gold exportation, aiming to promote value addition and enhance the sector’s contribution to the national tax revenue.
The URA’s directive, communicated to all airlines operating in Uganda, explicitly states that no gold export will be processed from January 28, 2024, unless exporters provide proof of clearing their outstanding tax arrears or demonstrate arrangements to do so with the Commissioner Customs.
An excerpt from the email sent by a URA customs office warns airlines against accepting gold shipments without proper clearance, citing violations of Section 199 of the East African Community Customs Management Act, 2004.
“I am writing to inform you that customs management has guided that no gold export will be processed from January 28, 2024 until the exporters have cleared their outstanding tax arrears or made arrangements to do so with commissioner customs. Accordingly, do not accept any gold shipments in your flight as doing so will constitute conveying unaccustomed goods contrary to section 199 of East African Community Customs Management (EACCMA), 2004 as amended.”
The email from one of the URA customs offices reads in part.
Section 199 expressly prohibits airlines from transporting goods that haven’t received clearance from the tax body. This decisive move by URA aims to strengthen compliance within the gold export sector and ensure that only duly cleared shipments are processed, aligning with the broader regulatory framework.
Parliament’s move to regulate gold industry
In an effort to bring order to Uganda’s gold industry, Parliament passed the Mining and Minerals Export Levy on Refined Gold Regulations 2023, introducing a five percent export levy on refined gold and a ten percent tax on unrefined gold.
Despite these measures, the export figures experienced a drastic 80 percent decline in 2022, plummeting to $201 million. Some gold exporters attributed this downturn to the implementation of the Uganda Revenue Authority’s (URA) levy.
To address the situation, Energy Minister Ruth Nankabirwa temporarily suspended the levy. However, the impact was negligible, given the absence of significant stockpiles of gold held by local refineries and exporters. Subsequently, the tax rates were adjusted to $200 per kilogram of refined gold and a one percent tax on the value of each kilogram of unrefined gold.
In a December 2022 report to Parliament, Auditor General John Muwanga criticized URA for failing to collect gold taxes amounting to Shs 340 billion from gold exporters, despite the industry generating trillions from gold trade. Muwanga noted that the non-collection was attributed to the minister’s guidance to suspend the implementation of the one percent export levy.
URA’s commitment to tax collection: Prospects of Shs 250bn revenue from gold exports
Paradoxically, the export levy on played a crucial role in streamlining the gold industry, eliminating fraudulent practices and tax evasion. Some gold traders had been exploiting the transit status, exporting unrefined gold under the claim that it does not attract taxes while passing through Uganda. This practice resulted in a significant loss of revenue for the country.
Despite these challenges, the Uganda Revenue Authority remains committed to tax collection. Based on current projections, URA anticipates collecting a minimum of Shs 250 billion from gold exports in the upcoming financial year, with the potential for this figure to increase in subsequent years.
As Uganda seeks to strike a balance between fostering a thriving gold industry and ensuring proper tax compliance, the regulatory landscape continues to evolve.
Navigating challenges: Gold exporters face headwinds
In the wake of the Uganda Revenue Authority’s (URA) recent directive to airlines, a shift in the dynamics of gold exportation has unfolded, with some exporters citing financial losses and logistical challenges as impediments to their operations. Additionally, these exporters claim a notable preference for Rwanda as a destination for refining gold.
A credible source who preferred anonymity within the Ministry of Finance, however, dismisses these claims, asserting that those highlighting Rwanda as a preferred destination are primarily motivated by a desire to evade taxes.
Revealed documents indicate that these traders predominantly export their gold to India, where the importation of refined gold is restricted. Consequently, these traders opt to export raw gold, securing a 0.6 percent tax benefit, amounting to $400 per kilogram for exporting unrefined gold to India.
The anonymous source emphasizes the minimal positive impact these traders have on Uganda’s economy, stating, “Look, we are not benefiting much from those who say dealers now prefer to go through some of our neighboring countries. Whether the gold comes here or not, these people simply do not want to pay tax. So, we have nothing to lose.”
Also Read: Gold exporters’ plot to skip taxes foiled
Despite dissenting voices, key industry figures view the URA’s directive as a transformative move in regulating the gold sector. Shukla Patel, Managing Director of Opal Minerals, applauds the levy as a catalyst for nurturing local refineries and curbing the unchecked exportation of gold.
Economist Alex Kisambira adds depth to the discussion, interpreting the export levy as part of a broader economic policy aimed at achieving specific macroeconomic objectives. He suggests that such levies may serve purposes such as stabilizing the currency, controlling inflation, or managing the balance of payments.
As the gold export landscape undergoes these significant changes, it remains to be seen how these measures will shape the industry’s future trajectory and contribute to Uganda’s economic goals.
