DFCU GROUP ON THE SPOT FOR MAKING FALSE TAX DECLARATIONS

By Mulengera Reporters 

Under Application No. 284 of 2022, DFCU Ltd (which owns DFCU bank and other businesses) continues to be investigated over tax avoidance and evasion claims.

Available information shows that DFCU Ltd has been making a lot of money in rental income as a result of renting out office and parking space at Kyadondo Road-based DFCU Towers which it has been owning and operating since 2014.

Some of the tenants thereon, who expensively pay in dollars, include AF Mpanga Advocates (since June 2016 at $11,243 per month), Unilever Uganda Ltd, DFCU Bank and the Kingdom of Netherlands Embassy in Kampala which uses the whole of 6th floor.

Each of these tenants pays a non-refundable commitment fee of $22,487 at the commencement of the rental relationship besides being required to pay a minimum of 6 months at the start which is relaxed to 3 months going forward. The monthly rent is increasable after 5 years.

The embassy became a tenant effective from 23rd January 2018 and has never looked back. The tenants each pay for parking space, toilets, electricity, security and other utilities and commonly used services.

The Dutch embassy took up the entire 6th floor equaling 900 square meters of rentable space and paid for 5 years at the rate of $11,700 per month. The deal was brokered through the Ministry of Foreign Affairs.

Some of the people who signed on the rental agreements include veteran lawyer Elly Karuhanga and Company Secretary James Mugabi.

For taxation-related matters, DFCU is registered and identified as TIN 1000028342 and its conduct and compliance is being inquired into in relation to more than Shs15bn which the Ugandan tax authorities want them to pay up.

Recently, a tax compliance audit into the affairs of DFCU Group was conducted and it revealed that the entity had been able to inappropriately diminish its tax liability through under declaring income it annually makes from renting out space to all these tenants.

The compliance audit covered the period between January 2014 and December 2020. That DFCU understated it’s rental income by Shs8,402,269,906. There are also other income tax payment-related obligations relating to unsupported expenses, variances in investments that were characterized as income and re-characterized receivables.

Late last year, several meetings were held to build some consensus and harmonization around this issue but not much progress was made. URA stuck to its guns that the assessed income tax amounts were payable and due: the same being a debt for the GoU.

As of 31st January 2023, URA escalated things by demanding that DFCU Ltd pays up or face severe consequences. There was also willingness to diminish the defaulted and now demanded rental tax from Shs6,468,065,028 to Shs3,515,818,716 but DFCU remained defiant and decided to escalate matters by seeking protection from the GoU’s Tax Appeals Tribunal where the same is being inquired into under Application No. 284 of 2022. But before their complaint against URA can be heard, DFCU has been required to pay up or deposit up to 30% of the assessed amount that it’s disputing as not due.

To prove its case against DFCU Ltd, URA has lined up a team of witnesses who include Joyce Kizza Robinah, Doreen Ahebwa, Annet Ruth Agwang, Patrick Echasa and Sarah Adongpiny.

It’s alleged that the undeclared rental income has been accumulating as follows: Shs955m for 2014, Shs536m for 2015, Shs172m for 2016, Shs1bn for 2017, Shs1.5bn for 2018, Shs1.53bn for 2019 and Shs680m for 2020.

Besides instructing their General Manager George Ochom, who has written many confidential letters to engage with URA on this issue, DFCU bank has also tried to leverage the services of their auditors KPMG whose officials have equally been engaging the tax man over the same issue.

George Ochom claims that URA came to a wrong conclusion regarding DFCU Ltd’s rental income because it’s auditors misclassified ‘service charges’ (like parking, security, fumigation and utility fees) which tenants pay to be part of their rental income whereas not.

That URA also failed to recognize the fact that some of the tenants, like the Dutch Embassy, got a huge discount and ended up paying less than what is disclosed in the rental agreement because they made a lump sum payment covering many years upfront or in advance. But URA has rejected this claim on grounds that the DFCU managers have failed to adduce any evidence that the Group does have a policy authorizing or providing for such rental discounts.

URA has also rejected DFCU’s claim that an expenditure of Shs3.5bn was incurred as interest on repayment of the loan with which the DFCU Towers was constructed and completed in 2014.

Yet that isn’t all. The two parties are also disagreed on the disclosed dividend income, allowable business expenses of Shs1.6bn which URA disputes as fictitious and another Shs844,453,830 which DFCU claims to have expended on hosting their members Annual General Meeting. It’s a listed company which makes AGM very important business.

DFCU General Manager George Ochom explains that the money (Shs844m) was spent on facilitation, public address system hire, refreshments, lunch and invitation of members.

URA has also disputed as curious another Shs1.9bn which DFCU Ltd claims to have invested into DFCU bank as recapitalization. (For comments on this story, get back to us on 0705579994 [whatsapp line], 0779411734 & 0200900416 or email us at mulengeranews@gmail.com).