BY OBSERVER | Some of the stakeholders in Uganda’s gold industry have welcomed a recent directive by Uganda Revenue Authority (URA) on gold exportation, saying it will encourage value addition and improve the sector’s tax contribution to the country.
On January 28, URA alerted all airlines operating in Uganda not to accept any gold shipments from Uganda if the exporters have no proof of clearance of all outstanding arrears or made arrangements to do so.
“I am writing to inform you that customs management has guided that no gold export will be processed from January 28, 2024 until the exporters have cleared their outstanding tax arrears or made arrangements to do so with commissioner customs. Accordingly, do not accept any gold shipments in your flight as doing so will constitute conveying unaccustomed goods contrary to section 199 of East African Community Customs Management (EACCMA), 2004 as amended,” the email from one of the URA customs offices reads in part.
Section 199 bars airlines from carrying goods that have not been cleared by the tax body. By 2021, the gold industry had overtaken coffee as the top foreign exchange earner with $1bn (Shs 3.7tn) worth of exports.
BACKGROUND
In a bid to regulate the industry, parliament passed the Mining and Minerals Export Levy on Refined Gold Regulations 2023 that provided for an export levy of five per cent on the value of refined gold for export as well as a 10% tax on unrefined gold. However, the figure of exports sharply fell by 80% in 2022 to $201m and some gold exporters blamed it on URA’s levy.
In a mitigating measure, Energy minister Ruth Nankabirwa suspended the levy but the impact was inconsequential as there were hardly any stockpiles of gold that had been withheld by local refineries and exporters. The tax rates were later revised to $200 per kilo of refined gold, and 1% on the value of each kilo of unrefined gold.
In his December 2022 report to parliament, Auditor General John Muwanga faulted URA for failure to collect gold tax worth Shs 340bn from gold exporters, despite the players in the industry reaping trillions from gold trade.
“A total of Shs 340bn in taxes had not been collected from gold exports valued at Shs 6.92tn for the year under review. Management attributed non-collection to the minister’s statutory guidance of staying the implementation of the 1% export levy.”
In essence, the levy actually helped streamline the gold industry to rid it of masquerades and tax evaders. A number of gold traders are simply exporting unrefined gold, claiming that the product is in transit in Uganda and, therefore, does not attract a tax. In the process, these gold traders are denying Uganda the much-needed revenue.
Nevertheless, Uganda Revenue Authority is determined to collect the tax. Going by the current figures, URA stands to collect at least Shs 250bn in the financial year from the gold exports, a figure expected to grow over the years.
CURRENT SITUATION
Since URA’s directive to the airlines, some exporters have come out to claim they are now unable to export gold as a result of financial losses and logistical complications in the business. They also claim that gold dealers now prefer to use Rwanda as the favourite destination to refine gold.
A source within the ministry of Finance, who preferred anonymity, said these gold traders who claim that dealers now prefer to use Rwanda as a source of destination for refining gold, are the ones who do not want to pay tax. Documents seen by our team show that these traders export most of their gold to India. India does not allow the importation of refined gold.
This means that these traders instead export raw gold. As a result, the traders receive 0.6 per cent in tax benefits equivalent to $400 per kilo for exporting raw gold to India.
“These traders’ tax payments and investments in Uganda are too low to make a positive impact on the economy”.
“Look, we are not benefiting much from those who say dealers now prefer to go through some of our neighbouring countries. Whether the gold comes here or not, these people simply do not want to pay tax. So, we have nothing to lose,” the official pointed out.
Several key players have come out to applaud the decision as a game-changer in the regulation of the industry. Shukla Patel, the managing director of Opal minerals, says some gold dealers have been used to transiting gold through Uganda without paying tax under the guise of value addition.
“This levy will help grow our local refineries and control the exportation of gold. The regulations will control the outflow of gold, build local refineries and ensure that it aligns with national economic objectives and sustainable development goals,” he says.
Meanwhile, Alex Kisambira, an economist, reasons that the export levy is part of a broader economic policy aimed at achieving specific macroeconomic objectives.
“For example, a government may use such levies to stabilize the currency, control inflation, or manage the balance of payments,” he says.