The auditor general (AG) has found that government lost Shs 40.8 billion last financial year through breach of tax laws by government ministries, departments and agencies.
Handing over his report for 2016-17 to the Speaker of Parliament Rebecca Kadaga yesterday, John Muwanga noted that government entities either failed to pay value added tax (VAT) or paid to non-existent service providers, and that no deductions of pay as you earn (PAYE) were made, leading to a huge financial loss to government.
According to the Value Added Tax Act, VAT should be paid by the ministry or department for goods and services, but the auditor general's report indicates that Shs37.6b worth of VAT was not paid while Shs 87million in VAT was paid [as VAT refund] to non-registered service providers.
The Income Tax Act, 1997 (as amended) also requires entities to deduct withholding tax and PAYE and to remit the withheld taxes within 15 days of the month following the one in which deductions were made. But Shs 1.12b in withholding tax was not remitted and Shs 261m was lost in withholding tax non-deductions.
The report indicates that that practice not only denies the government revenue for funding the national budget but also attracts penalties and fines, which in turn constrain the cash flows of the affected entities.
“Failure to settle the taxes may also adversely affect future project financing in the case of donor funded projects,” the report indicates.