By Mulengera Reporters
Protracted litigation continues raging at the Commercial Division of the High Court where MTN Uganda and URA are embroiled in a very complex and damaging tax dispute regarding breached tax obligations by the telecom firm amounting to Shs326,796,568,160.
URA’s side of the as filed under civil suit No. 938/2016 shows that this tax bill accumulated during the 4 year period running from January 2011 to August 2014. Acting on whistle blower information, URA in 2011 decided to conduct an investigative inquiry that focused on MTN’s tax compliance on incomes relating to mobile money transactions, sale of airtime, internet data, interconnection services and as well as sale of phones plus phone accessories.
Investigators from URA’s Tax Investigations Department (TID) also focused on the extent of MTN’s compliance regarding payment of corporation tax, VAT and excise duty. There had been claims that the giant telecom was underreporting/declaring its incomes from the various transactions in order to diminish their tax obligations.
The commercial agreement MTN signed with Stanbic Bank on 22nd February 2009 to open and operate an escrow account {through which e-money (aka float) for mobile money agents is availed for the float they operate with} was also looked into. URA contends that on every such virtual money transaction, MTN makes income by way of sending or withdraw charges which is subject to taxation but URA teams were failing to adequately determine the tax figures arising from that item because of the alleged malpractices causing MTN staffers to under declare the resultant incomes to the company.
During the tax investigations, whose findings MTN objected to arguing URA had exaggerated the extent of their tax non-compliance, also covered the activities of FUNDAMO Proprietary Ltd, the SA Company which supplied MTN with the core system on which the mobile money business is operated. URA teams also examined incomes MTN was making via mobile money specifically covering aspects like “fees account, dispute account, commission account, bank control, money transfers, fees account/manual transfers and adjustment account for discrepancies.” It was established by URA that contrary to what had previously been disclosed, MTN was reaping two income lines off the mobile money business namely: transaction fees and airtime sales conducted through mobile money.
When MTN felt URA wasn’t listening to their plea to be treated more leniently, they instructed their lawyers of KAA to refer the matter to court for fairer resolution of the dispute. Court papers show that URA auditors examined several MTN revenue streams including monthly revenues coming through mobile money; monthly declarations MTN makes to URA manifesting incomes made from MM transactions for excise duty & VAT purposes; audited financial statements & trial balances for 2011, 2021 & 2013; sales reports for airtime & other products and product sales report regarding income made from SMS users.
URA says that examination of the above reports as submitted by MTN led them to discover “various discrepancies in the plaintiff [MTN]’s transactions which resulted into variances and under declaration of taxes.”
In a recent interview with Mulengera News at her Nakawa offices, URA Commissioner General Dorris Akol confirmed existing of a tax disputes between URA and MTN but was uncomfortable divulging into details since the matter is in court.
Mulengera News separately established there have been efforts to resolve part of the URA claim through the mandatory mediation as advised by authorities at the Commercial Division of the High Court.
SHOCKING FINDINGS
Documents on the MTN/URA file in the Commercial Division of the High Court show that MTN had been under declaring its incomes resulting to less tax obligations as follows. The court documents reveal that through its tax audit inquiry URA discovered that MTN’s tax obligations relating to excise duty had been under declared by Shs1,149,691,250 and corporate tax by Shs7,400,427,706.52. This related to taxes resulting from incomes made off transaction fees payable by users of mobile money.
AIRTIME REVENUES
URA investigations further revealed that MTN tax obligations relating to airtime sales had been under declared as follows: Shs278,668,612,015.51 for excise duty and regarding VAT-related obligations, the same had been under declared by Shs32,442,299,397.66.
Tax obligations resulting from income made from sale of accessories had been under stated by over Shs14.9bn. “Some transactions posted in the plaintiff [MTN’s] account had no clear description,” URA auditors commented in relation to “entries posted in the FUNDAMO account.” MTN was asked to explain and URA says their written explanation wasn’t satisfactory to significantly alter the taxman’s final assessment results.
Several discussions and reconciliation meetings were held but the wedge between the two parties only kept widening prompting MTN to refer the matter to Commercial Court for final resolution that hasn’t come through up to this day. MTN filed the matter in August 2016 after URA refused to alter its tax claim.
As of August 2016, URA maintained that MTN’s total principal tax obligation was standing at Shs186,557,305,749 which was broken down as follows: Shs1.1bn as excise duty on transaction fees; Shs1bn as corporation tax on transaction fees; Shs4.9bn as VAT on airtime income sold via MM; Shs116.5bn as excite duty on airtime usage and Shs63.9bn as corporation tax payable on additional incomes.
Upon further scrutiny and fresh assessment, URA raised the VAT tax claim against MTN from mere Shs4,948,825,331 to a whopping Shs48,791,438,385.20. Towards the end of August 2016, MTN exited the reconciliation talks and asked URA to “vacate her assessment.”
On 11th November 2016, URA wrote a final communication to MTN specifically claiming the overall tax claim that was due was now standing at Shs326,796,568,160 inclusive of the outstanding principal sum tax and the resultant interest covering the period under investigation (basically January 2011-August 2014).
The figure (Shs326.8bn) was broken down as VAT Shs177,511,107,743; excise duty Shs38,570,540,452 and corporation tax Shs110,714,919,965. VAT comprised of Shs81bn as principal outstanding sum and Shs96.5bn as interest. Excise duty comprised of Shs38.6bn as principal sum and (curiously) zero interest.
Corporation tax comprised of the principal sum component of Shs59bn and Shs51.5bn as interest.
In total, URA demanded that MTN must pay Shs178.8bn as principal outstanding tax obligation and Shs148bn as interest bringing the total to over Shs326.8bn. The tax body argues that initially MTN had agreed to this entire claim as “due and payable” before subsequently turning round and opting to go to court.
In its written court submissions, URA says their Shs326bn tax assessment was based on examined documents and sales reports that were submitted by MTN management. URA lawyers further stated that “the assessment raised against the plaintiff [MTN] is accurate, valid, legal and consistent with the plaintiff’s submitted information, documentation and data and as well as the various tax laws and provisions.”
URA asked court to disallow MTN’s suit maintaining the plaintiff [MTN] hasn’t suffered any “vexation, distress or grave damage to its reputation” as a result of the Shs326bn tax claim URA slapped in their face. That court should not allow MTN any escape because there is evidence “that the taxes owing to be paid are a debt to the government of Uganda and are due and payable by the plaintiff [MTN].”
Besides dismissal of the MTN case, the URA management (in their defense) also prayed for costs against the plaintiff. To be continued. (For comments, call, text or whatsapp us on 0703164755 or email us at mulengera2040@gmail.com).
