UNDP Uganda

 

Harnessing Domestic Resources through Improved Tax Compliance by Multinational Companies

Uganda map

To support domestic resource mobilisation, the African Tax Administration Forum (ATAF), in partnership with the OECD and the World Bank Group (WBG), has, since early 2016, been providing Uganda with a technical assistance programme on international tax issues. To complement that technical assistance, TIWB has partnered with UNDP Uganda in supporting a tax audit capacity building programme for the Uganda Revenue Authority (URA) implemented jointly by TIWB (facilitated by ATAF) and the United States Agency for International Development (USAID). The programme is running a series of capacity building missions in international tax audits, with each organisation providing a specialised audit expert to provide hands-on training in transfer pricing audits of multinational companies. These experts bring a mix of experiences from South Africa and Australia.

There is an urgent need to mobilise more resources for service delivery and respond to the Addis Ababa Action Agenda calling on governments to mobilise domestic resources for development. UNDP Uganda, through its inclusive and effective governance portfolio, partnered with TIWB through a commitment letter to build URA’s capacity in transfer pricing audits.

Uganda is in the second year of implementation of its 2nd National Development Plan that aims to move the country to lower middle income status by 2020 and achieve the Sustainable Development Goals (SDGs). With increasing external debt resulting from massive investment in infrastructure and growing financial pressures to support service delivery, Uganda, like many developing countries, seeks to innovatively increase domestic resources. This is even more important given the reduction in official development assistance (ODA) and the global call to increase local financing for the SDGs.

At a national level, the Ugandan government continues to mobilise resources through the Uganda Revenue Authority (URA) to finance the country’s development needs. There has been a progressive improvement in URA’s capacity to collect local revenue owing to re-engineered policies, systems automation and other measures. However, locally mobilised resources are still low, with a tax-to-GDP ratio of 14.2%. In tax years 2016/17, there was a shortfall in revenue collection of USD 122 billion against the medium-term policy target. Tax collection challenges are attributed to the narrow tax base, low tax compliance, tax exemptions, and low capacity to conduct international tax audits.

To support this work, UNDP Uganda solidified its partnership with TIWB and URA in May 2017. The country office financially supported the first hands-on mission by an audit expert to train URA staff in international tax audit and transfer pricing in July 2017. From this support, two audits of multinational enterprises commenced. The TIWB support, combined with the ATAF-led technical assistance programme, has been, and will continue to be, critical and catalytic to Uganda’s domestic resource mobilisation.

 

UNDP Uganda has since continued to partner with TIWB during the tax audit missions. While continually supporting the audit missions to Uganda, UNDP has also integrated URA support in their 2018 annual work plan, with a budget to support advocacy, influence policy, reporting and capacity building of URA staff to compliment the TIWB programme work.

Uganda - Kampala

One of the gaps identified in 2016 by the ATAF-led technical assistance programme, and later noted by the TIWB expert, was a need to lobby government on the adoption of supportive legislative policy tools, such as revised transfer pricing and interest limitation rules to mitigate aggressive international tax avoidance.

 

The country is already anticipating significant increases in revenue and improved taxpayer voluntary compliance resulting from better audits, as the capacity of URA tax officials expands through the combination of the ATAF-led technical assistance programme and TIWB support which are building long-term URA capacity. Early lessons for the country office include the need to lobby government to adjust policy on tax holidays and build critical partnerships with other development partners such as ATAF, the Department for International Development (DFID), USAID and WBG, and to give strategic support and advocacy.

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