Critical Analysis of Corporate Tax Evasion in Uganda.

Overview
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TABLE OF CONTENTS

DECLARATION A ............................................................................................................... i

APPROVAL SHEET ........................................................................................................... ii

DEDICATION ..................................................................................................................... iii

ACKNOWLEDGEMENT .................................................................................................. iv

TABLE OF CONTENTS .................................................................................................... v

LIST OF LEGAL INSTRUMENTS ............................................................................. viii

LIST OF ABBREVIATIONS ............................................................................................ x

ABSTRACT ......................................................................................................................... xi

CHAPTER ONE .................................................................................................................. 1

INTRODUCTION ................................................................................................................ 1

1.1 Background of the study .............................................................................................. I

1.2 Statement of the Problem ............................................................................................. 2

1.3 Objective of the study .................................................................................................. 3

1.3.1 Specific objectives ..................................................................................................... 3

I A Research Questions ...................................................................................................... ~

1.5 Scope of the Study ........................................................................................................ 4

1.6 Literature Review ......................................................................................................... 4

1.7 Research Methodology ................................................................................................. 8

1.8 Justification of the Study .............................................................................................. 9

CHAPTER TWO ............................................................................................................... 10

THE LEGAL REGIME CORPORATE TAX IN UGANDA ........................................ 10

2.1 Introduction ................................................................................................................ I 0

2.2 General History of Taxation ....................................................................................... I 0

2.3 Uganda's Tax History ................................................................................................. II

2.4 The laws applicable in Uganda .................................................................................. 12

2.4.1 The constitution of the Republic of Uganda 1995 .................................................. 12

2.4.2 The Income Tax Act ................................................................................................ 13

2.4.3 The Tax Appeals Tribunal Act ................................................................................ 13

2.4.4 The Uganda Revenue Authority Act 1991 .............................................................. 14

2.4.5 The Tax Procedure Code Act .................................................................................. 15

2.5 Tax evasion and avoidance ........................................................................................ 15

2.5.1 Modes of tax evasion and avoidance ....................................................................... 16

2.5.2Measuring tax avoidance and tax evasion ................................................................ 16

2.5.3 Reasons for tax evasion and how corporate tax has been evaded ........................... 17

2.5.3.1. Corruption and ignorance .................................................................................... 19

2.5.3.2. Corruption and bribes .......................................................................................... 20

2.5.3.3. Poor business environment. ................................................................................. 20

2.5.3.4. Behavioral reasons for non-tax compliance ........................................................ 21

2.5.3.5. Lack of enforceability little or no sanctions/ weak enforcement of tax laws ...... 22

2.5.3.6. Weak capacity in detecting and prosecuting inappropriate tax practices ............ ~~

? - _.).J. " 8 C f 'd . . I ?? . .onsequences o tax avo! ance or tax evasiOn 111 tle corporate sector ............... __

CHAPTER THREE ........................................................................................................... 24

INTERNATIONAL LEGAL REGIMEON CORPORATE TAX ................................. 24

3.1 Introduction ................................................................................................................ 24

3.1.1 International Comparisons ...................................................................................... 24

3.2 The International legal regime ................................................................................... 25

3.2.1 Economic Considerations ........................................................................................ 25

3.2.2 Evaluating the Corporate Income Tax ..................................................................... 27

CHAPTER FOUR .............................................................................................................. 32

STRATEGIES TO ENSURE COMPLIANCE TO CORPORATE TAX IN UGANDA32

4.1 Introduction ................................................................................................................ 32

4.1. I Compliance risk management ................................................................................. 32

4. I .2Managing data and information requirements .......................................................... 33

4. I .3 Data mining ............................................................................................................. 33

4. I .4 Understand what influences taxpayer behaviour ..................................................... 34

4. I .5 Ensure effective execution ...................................................................................... 34

4.2.5 Plan meaningful evaluation ..................................................................................... 35

4.3Conclusion ................................................................................................................... 36

CHAPTER FIVE ............................................................................................................... 37

CONCLUSION AND RECOMMENDATIONS ............................................................. 37

5.1 Conclusion .................................................................................................................. 37

5.2 Recommendations ...................................................................................................... 39

BIBLIOGRAPHY .............................................................................................................. 41

ABSTRACT This Dissertation was intended to critically analyze corporate tax evasion in Uganda: It was guided by the specific objectives which included finding out whether Uganda's legal 1·egime provides for corporate tax evasion, depict the role of Uganda Revenue Authority in ensuring corporate tax compliance, explore the international legal regime in regards to corporate tax evasion and to suggest or make improvements to the law in regard to corporate tax evasion. Uganda presents an intriguing case of tax avoidance. A wide range of experts agree that the nature of Uganda's tax system conforms to global benchmarks. Income and corporate tax rates in Uganda are 30 per cent per annum at the highest bracket. The large gap between actual tax paid on overall earnings and expected tax to be paid on income-generating activities is worrying. This also highlights the extent of tax evasion and tax avoidance prevalent. Noteworthy is tax evasion, which is failing to file a tax return and pay taxes when they are due is illegal. If found guilty, action can be taken against the individual or organisation involved. Ironically, those engaged in tax avoidance, which involves exploiting loopholes in the law to circumvent paying some tax escape penalty, as it is not deemed to be against the law. Tax avoidance does not just occur due to those who intentionally elude paying tax. Informal sectors not captured by the tax regime alongside ignorance about tax matters contribute significantly to tax evasion. To minimize this, there are three things the government ought to do: Improve the legal framework to weed out possibilities of tax avoidance, create better incentives for tax payment and promote persuasive and far-reaching tax awareness. The study recommends there to be intensive computerization of the system to easily monitor and curb any manipulation of the tax audits. There is need for readily available knowledge on tax evasion and tax avoidance in Uganda given that data and literature in this respect is scarce, such to enable the respective authorities to tackle problems. Reforming tax policies and strengthening tax administrations in Uganda is crucial to establish a 'level playing field' in tax matters between other countries' administrations, globally active MNEs and large and well informed taxpayers. In this regard, specialized trainings in the field of cross-border profit shifting and tax fi·aud represent a promising strategy for future work.

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Critical Analysis of Corporate Tax Evasion in Uganda.

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