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Section 42 of the tax procedures code act: Why URA’s blanket request for information is unlawful.

Section 42 of the tax procedures code act: Why URA’s blanket request for information is unlawful.

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Introduction:

In the past one month, there has been legally interesting revelations pertaining to the collection and administration of taxes in Uganda. On the 12th March 2018, the President of the Republic of Uganda wrote to the Minister of Finance, Planning and Economic Development drawing his attention to the lack of seriousness of (the) ministry and that of Uganda Revenue Authority in identifying tax sources and collecting more taxes for our country…” He continued that “I am beginning to confirm that there is a total lack of seriousness, at the very least, or collusion, at worst among your tax identifiers and collectors.”

The President’s remarks, were not strange at all, because, the Minister of Finance in his budget speech delivered to the Parliament of Uganda on the 8th June 2017 echoed a similar position.  He said “Madam Speaker, at only 13.8% of GDP on tax revenue, effort is very low and inadequate to finance our development needs,” thereby suggesting an urgent need to improve the collection of taxes.

There has been a persistent push by the URA to increase its tax collection through a number of efforts for instance, it increased its tax register from 618,415 tax payers to 1,057,563 in 03 years.  Indicative figures from URA show that tax collection has risen from UGX 6.2 Trillion in 2011/2012 to the current UGX 15 Trillion for 2017/2018. Coming from a short fall of UGX 377 Billion, the previous financial year, the desire to identify more tax revenue avenues came to the fore   when the URA through its letters of  the 16th, 19th and 28th March 2018 wrote to all banks and non-bank financial institutions directing them to furnish it with information (demographic and financial including turn over and balances) on all accounts held for the years 2016 and 2017 on the basis of section 42 of the Tax Procedures Act, 2014.    This was also against a backdrop of bank leaks purportedly indicating a public servant being in possession of accounts with credits in the excess of USD 3 Million.

In this paper, I make the argument that administering tax laws implies giving effect to the specified tax laws and the provisions therein.   There must be a specific provision (s) that the Commissioner by her notice seeks to specifically enforce when she exercises the power under section 42 (and 41).   The Commissioner is under a duty to ensure that there is compliance with each provision of the tax laws to ensure that all eligible persons pay the tax that is due to the government as and when it is due.   A person can only to be liable to pay tax if such a tax is owed under a specific tax law.  When such a tax is due, then the Commissioner is obliged to demand for the payment of such a tax, and it is only when they decline to do so that enforcement mechanisms commence as prescribed under the law.   For people who refuse/fail to meet their tax obligations, there is an array of provisions within the law that URA can invoke to enforce compliance.   In my view, it is outside the provisions of the law for URA to adopt a measure of gathering all information from all banks in respect of all possible tax payers with a view of enforcing tax collection, a measure that is otherwise not provided for by law.   URA in seeking to enforce tax collection, must be enforcing the provisions that are already contained in the tax laws to enforce tax compliance.  As such, it is improper to request for information from banks in respect of no known noncompliance, without regard to the various enforcement provisions of the tax laws and without specifying the specific provision that is sought to be enforced.

The Tax Procedures Code Act, 2014:

It is an accepted legal position, that all eligible persons are under a legal duty to pay their respective taxes to government.  URA is also under a statutory duty to “administer and give effect to the laws or the specified provisions of the laws set forth in the first schedule to this Act…and assess, collect and account for all revenues…” Though the First Schedule to the Uganda Revenue Authority Act mentions a number of Acts, it omits the Tax Procedures Code Act, 2014.  This is partially explainable through the fact that the Uganda Revenue Authority Act’s commencement date was 5th September 1991 whereas the Tax Procedures Code Act was assented to on the 19th October 2014 and commenced on the 1st July 2016.

The long title to the Tax Procedures Code Act, 2014 (TPCA) states that the that Act is to “provide for a code to regulate the procedures for the administration of specified tax laws in Uganda; to harmonize and consolidate the tax procedures under existing tax laws and to provide for related matters.” In its section 2, the specified tax laws are, “this Act, Income Tax Act, Excise Duty Act, Gaming Pool Betting (Control and Taxation) Act and any other Act imposing a tax…” The TPCA in its section 41 empowers the Commissioner in the administration of any tax law, and without any prior notice to enter onto any premise and access any information, data storage device and further extract copies of the same or even seize such data storage facilities. In section 41 (7) of the TPCA, section 41 has effect notwithstanding any law relating to privilege or public interest or any “contractual duty of confidentiality.”  The Commissioner has further power under section 42 of the TPCA again for the purpose of administering any provision of any tax law, require any person to furnish her with any information.  Furthermore, section 42 (4) provides that section 42 has effect notwithstanding any law relating to privilege or public interest to any “contractual duty of confidentiality.”

Clearly from the above provisions of the TPCA, the Commissioner may argue that in her administration of “any tax law” she has the mandate to demand for and seize any information that she requires from any person.  Indeed it is under section 42 of the TPCA that she made the demand to all banks to furnish her with all information relating to demographic, turn over and account balances.  However, within her above mentioned letter, she did not mention any specific tax law that she sought to enforce.  The term “administration” is defined by the Black’s Law Dictionary as the “management or performance of the executive duties of a government, institution or business.” The same term is defined by the Oxford Advanced Learner’s Dictionary as the “activities that are done in order to plan, organize and run a business, school or other institution…”  In understanding URA’s legal mandate to “administer” any tax law, one must be mindful of the provisions of the Uganda Revenue Authority Act, TPCA and all other tax laws as mentioned in both these Acts.  It is the provisions of these respective Acts that the Commissioner seeks to enforce under her request in sections 41 and 42 of the TPCA.

Why section 42 does not apply to URA’s request?

The Uganda Bankers’ Association in its press release of 8th April 2018 mentioned that URA requested all banks to avail it with “information (demographic and financial including account turn over and balances) on all accounts for the years 2016 and 2017…”  URA’s letter of 16th March 2018 however states the request as “details of all accounts for the period 1/01/2016 to 31/12/2017.”  Within the said letter, URA states the request to include “Account Name, Account Number, Name of Signatory, Type of Account, Tax identification Number, National Identification Number, Total Credits for each of the 2 years, Total debits for each of the two years…”  Within its letter and save for making reference to the TPCA, URA does not mention any tax law that it seeks to administer thereby making a blanket request for an unknown specific purpose.  If however, we assume that URA seeks to enforce tax payment and tax collection, then it was improper for it to rely on this provision.

All eligible persons are by law under a duty to pay their proportion part of tax.  Section 27 of TPCA provides that “tax owing by a tax payer for a tax period is payable on the date specified in the tax law under which the tax is payable.”   This amount is “collected by the Commissioner serving a notice of demand on the person liable for the amount.”  It follows from this, that an eligible person is liable for a specific tax under a specific tax law, and they are liable upon a demand from the Commissioner.   Once such a person has been determined to be liable to pay tax, then Section 29 of the TPCA provides that such an amount is a debt due to government entitling the Commissioner to take on any legal measures to recover the same including but not limited to commencing civil action.   When a tax payer refuses to pay the taxes that are determined to be due to government, a number of legal options are available to the Commissioner e.g. preventing a person from leaving Uganda, requiring a 3rd party who owes the taxpayer money to pay directly to the Commissioner, distress and sale of movable property, charging property, seizure of goods among others.  

With these provisions in mind, URA’s administration of tax laws must be interpreted to mean the enforcement of the provisions of the Income Tax Act, the Value Added Tax Act, the Excise Duty Act, and the Gaming Poll Betting (Control and Taxation) Act.  There must be a provision within these Acts that URA seeks to administer when it seeks to enforce the provisions of section 42 of the TPCA.   In the absence of any such provision, URA’s actions can only be unlawful.

Conclusion:

URA’s objective of improving the tax base and ensuring that all persons pay their respective taxes is commendable.   However, URA is by law obliged to strictly comply with the provisions of all Laws of Uganda in its quest to broaden the tax base. To seek to broaden the tax base through a bland and indeed blind request to banks to avail all information on all accounts held in all banks is an attempt to enforce an unknown provision of the tax laws, which action is improper and illegal.  If there is any person who refuses to pay any tax that is due under a tax law, then URA will be within its powers to request for information in respect of such an individual.  However, it is illegal to make a blanket request which request even extends to compliant tax payers.

Get the downloadable PDF version of this paper here


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