22 SPOT LIGHT - VAT FRAUD By the Tax Investigations Department Team Qn. 1: What is VAT fraud in respect to the campaign you have embarked on? VAT fraud manifests in various ways and tax compliance teams within Domestic Taxes (DT), Tax Investigations (TI) and Customs are at the fore front of ensuring compliance to the requisite statutory obligations. The campaign kick started by TID, seeks to tackle a particular type of VAT fraud where scrupulous persons target the VAT mechanism by introducing fictitious or falsified transactions in their VAT returns. This type of fraud is also known globally as Missing Trader fraud simply because fake companies or nonexistent taxpayers are fraudulently used to generate the fictitious invoices. The invoices are introduced in their business purchaserecords with the sole purpose of illegally reducing the rightful VAT payments. The bogus invoices, are meant to illegally reduce the VAT payments registered taxpayers/institutions are supposed to comply with. Qn. 2: How grave is the vice? Investigations carried out by TID on 48 taxpayers between 2015 and 2017 led to assessments of UGX 60.4 Billion shillings arising out of undeclared tax. Our intelligence has now established additional taxpayers involved in this fraud and we estimate that fake invoices worth over UGX 100Bn in input VAT have been illegally introduced in taxpayers returns from 2014 to date. All these liabilities attract heavy interest and penalties in accordance with the tax laws, including possible prosecution of the persons involved. Qn. 3: What preventive measures has URA put in place to ensure that the vice is dealt with? Investigations have been instituted into this fraud and as part of these reviews, a VAT fraud campaign has also been launched. Taxpayers have been notified through various media channels to verify their business records and use this opportunity to self-correct anomalies in their
23 VAT returns by the 31st March, 2018. The campaign involves sensitizing the public about the fraud, providing an opportunity for taxpayers to self-correct. Sensitizing taxpayers is a key preventive measure for this type of fraud. Qn. 4: What penalties are in the offing for the culprits? The ongoing investigations target companies/institutions, which have facilitated issuance/selling of fictitious invoices and those that have included these invoices in their ‘purchase books’. Tax payers who do not carry out self-correction by the 31st of March 2018 are likely to face the following; • Disallowing all fictitious VAT input with appropriate interest and penalties instituted. • Deregistration of taxpayers involved especially those facilitating issuance of fictitious invoices. • Prosecution of the perpetrators. Qn. 5: What call to action can you give the audience of this message? All taxpayers are called upon to verify their business records and use this opportunity to self-correct anomalies in their VAT returns. Taxpayers who require support should approach the nearest Domestic taxes offices. The URA staff are encouraged to take interest in sensitizing taxpayers to avoid participating in this fraud at any given opportunity.