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Lack of clarity over corporate ownership is a contributing factor in the annual $550m of illicit financial flows in the Ugandan economy, according to the report from Global Financial Integrity (GFI) and Advocates Coalition for Development and Environment (ACODE).
Beneficial ownership (BO) transparency is being increasingly used globally to curb the use of anonymous companies to hide financial flows. But there is no central legal requirement to collect BO information for either companies created in Uganda, or foreign companies registered there. This handicaps the Ugandan government’s ability to track criminal actors and recover tax revenue, the report says.
A registry of corporate beneficial ownership in Uganda could be a step forward if successfully implemented, says Mark Bohlund, senior analyst at REDD Intelligence in London. “While businesses generally don’t like to be taxed, such a registry, with connected tax revenue could strengthen proof of ownership and company revenues which should make it easier to sell companies.”
Efforts to increase tax revenues across Africa are often focused on widening the tax base, “which means taxing more poorer people, or imposing new indirect taxes,” Bohlund says, citing Ghana’s levy on electronic transactions launched on May 1. “The distributional effects of such measures are generally regressive.”
- Uganda’s dependence on indirect taxes creates such a regressive system, according to Oxfam’s 2021 Fair Tax Monitor report.
- Indirect taxes disproportionately hurt low-income earners, especially women, as they spend a higher proportion of their income on consumer goods for their families, the report says.
There have been piecemeal information-collection efforts in Uganda, but the GFI report argues that a centralised approach is needed. This would have the advantages of making all the information available in one place, with one public agency responsible for its maintenance. A central Ugandan registry should include legal arrangements such as trusts which can be used to evade tax, the report adds.
Uganda’s new mining and minerals act passed in February requires companies applying for a mineral rights license to publicly disclose BO information. But this doesn’t apply to companies in other sectors. And even mining companies will only be required to submit the name of their beneficial owner, without ID documents or further information.
Zambia provides a good example of a central legislative framework for BO transparency, the GFI report argues.
- The 2017 companies act mandates a central BO register applying to all companies in the country, including those which are used simply to hold assets or open bank accounts.
- Uganda should amend its companies act to adopt a similar model, the report says.
- Setting up such a system, of course, would take money. GFI argues that “a robust beneficial ownership register that leaves no room for loopholes has the potential to earn those resources back many times over”.
Uganda will keep struggling to collect revenue without a central register of beneficial ownership.
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