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Investigation: Finance Ministry Helps Indian Billionaire Evade Shs 40bn Tax

A row has erupted between the Ministry of Finance and Uganda Revenue Authority (URA) after a wealthy Indian businessman was busted for evading taxes amounting to Shs 40bn.

While the Finance Ministry’s top officials wrote to URA to let go of Yogesh Modi, the Managing Director of Mineral Oil Company, the taxmen stuck to their guns, saying such a move would perpetuate impunity.

Since 2013, the multi-billion shilling oil company has been claiming that it manufactures and supplies high quality specialty lubricating oils, brake fluids, radiator coolants and transformer oil from its factory in Namanve, Mukono District.

However, an operation conducted by URA last year established that the firm would import finished products and repackages them for sale.

This, according to dozens of confidential correspondences seen by ChimpReports, lasted two years, allowing Mineral Oil Company to dodge import duties to the tune of Shs 40bn.

Plot

Drama started unfolding in March 2018 when information was received by customs officials that whereas Mineral Oil Company, a local manufacturer of engine oils, is duty exempt on its imported base oil (raw material for making engine oils); the truth was that they were importing finished or final products and simply packaging for sale.

The information was reportedly leaked to URA by an insider in Mineral Oil Company who had “unlimited access to highly confidential information” about the company’s tax evasion tactics.

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URA customs officials responded by intercepting three containers of purported recycled base oil imported by Mineral Oil Company in transit to Kampala from Mombasa vide entry numbers 9304 of March 11, 2018 Kemba.

The first container registration number EITU 0156698 was intercepted by URA on March 20, 2018 and deposited at Maina Inland Container Depots (ICD) in Nakawa, Kampala.

Another container number TRHU 1156949 was intercepted and also deposited on March 21, 2018 at Maina ICD.

The third container number EGSU 3106306 was delivered at the owners’ premises on March 23, 2018 as well as other two containers.

The purpose of the intervention was to validate information received including that whereas the importer was granted an exemption to import raw materials for the manufacture of lubricants and greases, Mineral Oil Company was in fact importing finished products and simply repackaging for sale.

Crack whip

According to interviews done by ChimpReports as part of a six month investigation into tax evasion in Uganda, tax officials were “startled” by the findings.

“We had to return to the drawing board,” recalled an official who participated in the ground-breaking investigation.

“It was hard to believe that someone, who was given a huge tax waiver on imports to reduce his cost of production and also create jobs, goes ahead to use the same benefits to import finished products with the view of evading taxes,” the source said.

The findings shed a spotlight on the underbelly of the dark operations of the so-called investors who are usually given free land, tax holidays and subsidized electricity rates with the hope of transforming the country through value addition.

Officials said if the state does not toughen on such criminality, most importers of Ugandan products will continue to question the origin of the country’s exports.

Last year, the Tanzanian government refused to allow sugar exports from Uganda, questioning their origin. President John Magufuli said he was protecting local producers from “foreign sugar.”

This compelled Museveni to direct security services to search for warehouses where sugar imported from foreign countries was kept before being repackaged as Ugandan exports.

Action

Nevertheless, upon intercepting Mineral Oil’s containers, URA opened a general inquiry file under number URA/ENF/GEF/091/2018.

An impromptu visit was made to Mineral Oil Company’s premises for purposes of verifying the production processes and to ascertain whether this company qualified for the tariff treatment currently accorded to it by customs with regard to their imported duties.

For transparency purposes, on March 9, 2018, a team of customs officials procured three boxes of engine oil from the manufacturers’ dealer in Kampala under the name Mukiisa Investment at Shamba Complex shop number 37 R, at Shs 450,000 receipted on receipt number 1473.

“The purpose was to provide a sample of the finished products on the market for comparison with imported raw materials,” said URA Commissioner Customs, Dicksons Kateshumbwa, in a classified internal memo seen by ChimpReports.

On March 21, 2018, the URA team further procured other finished products directly from the factory namely 20 boxes of different oil products including six boxes of GSPE040 6*5; six boxes of GS ATF 6*5 and eight boxes of GS DEO 6*5 vide receipt number March 37. The receipts were dated March 21, 2018 with a cost of Shs 2.9m.

URA’s Commissioner Customs, Dicksons Kateshumbwa

Little did Mineral Oil Company realize that the buyers of oil were customs officials.

A formal request was then sent to the Chief Government Analytical Laboratory (CGAL) to examine base oil imported by Mineral Oil.

Since the oil containers were parked for several days, Mineral Oil through its representative Chickways Uganda requested the assistant commissioner for permission to have the goods transported to and samples drawn at owner’s premises to salvage any possible truck detention charges.

URA gave permission to have the trucks removed but assigned officers to escort and draw samples.

On March 31, 2018, samples were drawn by officers from the directorate of Government Analytical Laboratory (GAL) together with a URA officer and Mineral Oil boss Yogesh, who authorised and witnessed the process of drawing samples.

ChimpReports has learned that the exercise for drawing samples could not end on the same day due to time factors. The team, including Yogesh, agreed to reconvene and conclude the work the following day.

The premises where the oil trucks were parked were sealed off and guarded by three soldiers for “evidential integrity” and their “safety.”

Eventually, a total of eight samples were drawn from three containers in question – four drums and one sack, for examination and analysis.

On March 27, 2018, URA sent a communication to Mineral Oil to provide copies of the “certificate of analysis of raw materials from the manufacturer and a certificate of analysis of finished products.”

Yogesh Modi contacted Stanley Trading Dubai for the requested documentation but could only avail the certificate of analysis of raw materials. Yogesh failed to obtain a certificate of analysis of finished products.

Busted

At the Government Analytical Laboratory, experts discovered there was “no significant difference between Mineral Oil Company’s imported raw materials and finished products” being sold on the market.

In short, Government analyst, Adokorach Lucille, who compiled the examination report on May 4, 2018, implied that Mineral Oil’s imported products and its finished products were the same.

Yet, on its website, Mineral Oil company says is possesses a “’state-of-the-art new manufacturing plant at Kampala, with the latest imported machineries for the ‘manufacturing’ and filling all types of lubricants that include oils, greases and synthetics.’”

The company further claims owning an “in– house testing laboratory and our own jerry can molding machines” which allow it to be “entirely self-sufficient to produce the quality products with an aim to re place the expensive European lubricants.”

Tax assessment

Meanwhile, basing on their findings, URA communicated a tax liability of Shs 529m in respect of the ten containers. Yogesh was asked to turn up for a reconciliation meeting on May 22, 2018 and offer an explanation for the detected anomalies. He never turned up.

Instead, Yogesh reached out to his lawyers Birungyi Barata & Associates who on May 15, 2018 requested for a copy of the laboratory findings by the Government Analytical Laboratory and a tax computation of the estimated sum.

Ten days later, URA received a letter from Yogesh’s lawyers saying the Mineral Oil Company had filed an application in the Tax Appeals Tribunal “objecting to an assessment of the total sum of Shs 500m being import duty” and thus was required to pay 30 percent of the tax in dispute.

Meeting

Kateshumbwa called for a meeting of customs officials handling the case, Yogesh and his lawyers to discuss the matter.

According to records of the meeting, Kateshumbwa cited the report from the government laboratory showing there was no difference between the purported raw material imports which are exempted from taxes and the finished product of Mineral Oil. He insisted the company had to pay the tax liability.

Yogesh requested to draw new samples and submit them to a laboratory of their choice for comparison with the already obtained results from the Government Analytical Laboratory (GAL).

URA gave Yogesh a green light but insisted that Mineral Oil had to further explain in writing why they contested the findings of the government laboratory as a precondition for the process of drawing samples.

Yogesh explains

On June 12, 2018, Mineral Oil objected to the laboratory report, saying they did not believe the results were obtained from samples drawn from their station.

“I want to bring to your attention, that samples were withdrawn by the lab officials themselves on March 24 whereas reached lab on April 6, 2018. The time taken is 13 days for samples to travel within the same city creates too much suspicion,” Yogesh wrote to Kateshumbwa.

He added: “It is also important to note that samples numbers withdrawn were marked as number 1, 2, 3, 4, 5, 6, 7, 8 – whereas on test reports 4,5,6,7 were not there. Rather new samples unknown to us have been mentioned.”

URA’s Assistant Commissioner Enforcement Agnes Nabwire Asobola wrote to GAL, seeking an official response to Yogesh’s claims.

“This is therefore to request you to furnish us with details regarding your procedure of receipt and or certified copies of any entries made at the point or receipt of the said samples between March 24, 2018 and April 6, 2018 to enable us resolve this controversy as well as proper prosecution of this matter.”

Responding to Nabwire, Internal Affairs Director, Kepher Kuchana Kateu, explained: “The first batch of 8 samples were obtained from Mineral oil premises on March 24, 2018 and were officially registered in the food and drugs division sample reception book on March 26, 2018. The last batch of 6 samples was forwarded to Director GAL by URA for analysis on April 6, 2018.”

But this did not explain the delay in registering the samples.

Kuchana had to give a detailed clarification on Yogesh’s queries.

He said all samples necessary for this investigation were duly registered officially as one case at the DGAL’s reception book and given laboratory number GE 091/2018.

“Although the same receipt process started on March 24, 2018, the official registration awaited the last batch that was submitted on April 6, 2018 and thereafter sample analysis commenced.”

Additionally, the samples were drawn from Mineral Oil premises on March 24 by officials from GAL in Yogesh’s presence and transported by GAL staff.

Despite these clarifications, ChimpReports understands that Mineral Oil Company continued to contest the findings.

On June 12, 2018, the company wrote to customs providing a certificate of analysis purportedly issued by their exporter Stanley Trading LLC.

The taxmen established that this was a general report referring to all their exports to Mineral Oil between July 2017 to May 2018.

This created an impression that Mineral Oil does not have analysis reports from its exporter on specific consignments indicating specific packages, invoice numbers and dates and this, to URA, revealed a “glaring gap pointing to non-compliance.”

Evading long arm of the law

Amid these counter accusations between URA and Mineral Oil, a meeting was called on July 12, 2018 by the Finance Ministry to handle the matter.

According to minutes seen by this investigative website, the meeting was chaired by State Minister for Finance, David Bahati.

It was attended by Acting Permanent Secretary Patrick Ocailap and representatives from the Ministry of Energy, UNBS, Ugandan Investment Authority and Mineral Oil.

Minister David Bahati speaking at an event in Kampala

Yogesh’s team claimed they were being harassed by government agencies. It remains unclear why URA was not invited to the same meeting.

The meeting resolved that UNBS “fast tracks the process of certification of the company’s products and the conclusion of criminal proceedings against the company’s managing director in the spirit of promotion of investment.”

Additionally, the same meeting chaired by Bahati resolved that URA, UNBS, UIA AND Energy Ministry take fresh samples of base oil from the mineral oil containers for testing and prepare a report accordingly.

Kateshumbwa, according to a correspondence from Ocailap, was called for a follow-up meeting on July 16, 2018 to “receive and discus the progress reports.”

Indeed, at a meeting held on July 19, 2018, the joint government team which relied on new samples oil samples from Mineral Oil, said there was “an error in determination of kinematic viscosities or computation of viscosity index or both.”

Kinematic viscosity is defined as a fluid’s resistance to flow and it traditionally measured by noting the time taken for a fluid sample to travel through an orifice in a capillary under the force of gravity.

UNBS’ Fuel Marking and Quality Monitoring Program Laboratory Head, Spero Byokunda, also indicated that GAL’s “report does not indicate the reference test method or method.”

Minister Bahati would later rely on this document to inform URA Commissioner General, Doris Akol, to “release the Mineral Oil Company’s container subject to tests conducted by a joint team of MEMD, URA and UNBS.”

In his letter dated August 2, 2018, Bahati also asked Akol to “update this ministry within a week of the actions taken by URA to resolve this issue.”

Failing URA?

 

Interestingly, Yogesh had earlier informed the customs officer at the scene that contents of the oil in the tanks in Namanve was the same as that in the containers as declared to customs thus the samples drawn were representative of all the offloaded quantity as well.

However, the company was allowed to use base oil consignment from which the samples were drawn.

This meant that the samples obtained for the second examination of a joint team of government investigators were drawn from totally different consignments which could not be compared with what was in question initially.

“This is the same reason the company was granted permission to satisfy themselves by conducting their independent their independent analysis which in this case cannot be binding upon URA for the purposes of resolving the case at hand,” said an official who spoke to us on condition of anonymity as the matter is before Tax Arbitration.

“Drawing new samples when the proprietor was prepared was an exercise in futility. We caught Yogesh in the act and the Finance Ministry didn’t realize their actions were allowing him buy time to dodge the long the long arm of the law.”

ChimpReports understands that following URA’s intervention, Mineral Oil started testing their finished products before being supplied on the market for sale having acquired a flow viscometer tube via DHL on May 30, 2018.

URA has since determined that there was a strong case based on the technical report of the government analytical laboratory which can be sustained in courts of law if the Tax Arbitration does not compel Yogesh to settle his tax liability.

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