Tax row threatens Bujagali power project

A tax row is threatening to delay the Bujagali hydropower project, seen as crucial in solving the acute power shortage in the country.

The Uganda Revenue Authority (URA) has defied a directive from the finance ministry to halt VAT charges against the project’s supplier and sub-contractors. It also refuses to refund money it took from the supplier’s account over tax defaults.

In February this year, URA froze the accounts of Bavima Enterprises, the project’s main supplier, demanding VAT arrears totalling sh358m. It also forcefully took sh17m from the company’s account in Crane Bank.

In addition, the tax body is demanding sh331m from three sub-contractors, Boschcon, Cilmerics and Pitchbuild.

The suppliers and sub-contractors have cried foul, saying the move had put their companies in great financial hardship.

Boschcon has declared bankruptcy while the management of Cilmerics is on the run from angry workers.

Employees of both companies have complained to the energy minister and the World Bank, the chief financier of the $860m (sh1.9 trillion) project, about non-payment of salaries. They are demanding sh3.2b in salary arrears and have threatened to go on strike over the issue.

When contacted, Boschcon management confirmed that it owed its workers money and blamed the Government for refusal to refund their VAT.

The URA clamp-down has triggered a chain reaction, with the sub-contractors trying to pass the taxes onto Salini Construttori, the main contractor of the 250MW power project. But Salini has soundly rejected the bills and instead has passed them on to Bujagali Energy Limited (BEL), the project developer.

PriceWaterhouseCoopers, a reputable audit bureau, has warned that the move will not only cause delay but also increase the project cost by $9.6m (sh21b).

The tax squabbles started in May 2007 when the suppliers and sub-contractors invoiced Salini for deliveries and work completed, inclusive of VAT.

But Salini rejected the rates, saying it was VAT exempt. It referred the companies to the finance ministry and URA for a VAT refund.

A series of meetings were held with officials from the ministry, URA and the Bujagali developer but the issue was not sorted out. The dispute, which former finance minister Ezra Suruma left pending, has reached the desk of his successor, Syda Bbumba.

The Solicitor General in a letter of February 11, 2009, advised the permanent secretary of the finance ministry, Chris Kassami, that the sub-contractors were entitled to VAT refund under the VAT (Amendment) Act 2008.

Consequently, Bumba in a letter two weeks later asked URA boss Allen Kagina to halt any enforcement measures against the sub-contractors pending a Cabinet decision.

Last month, Keith Muhakanizi, the deputy secretary to the treasury, also wrote to Kagina requesting that the VAT arrears of the companies in question be re-assessed with a view to keeping the cost of the project low.

“I would be grateful if you verified these claims and provided a way forward on how to resolve them without further impediment to the project implementation,” Muhakanizi said in the April 28 letter.

But Moses Kajubi, the URA commissioner for domestic taxes, said the claims by the four companies were illegal and refunding the money would be against the law.

“According to the VAT (Amendment) Act 2008, the VAT on input goods and services by Bujagali sub-contractors is not refundable,” Kajubi told The New Vision.

“We implement the law as it is. If I withdraw money from the URA coffers to refund the sub-contractors, I would have paid illegally.”

URA spokesperson Sarah Birungi Banage also disclosed that some of the arrears being demanded from the four companies were for supplies made outside the Bujagali project.

“They trade with a cross-section of clients across Uganda and definitely their business transactions, other than those with Bujagali project, are subject to taxation,” Birungi said.

“This explains the tax assessments URA raised on them. When they did not co-operate in paying up, we froze some of their accounts. But they made the necessary arrangements to pay so the accounts were later opened.”

Salini warns that the impact of VAT will increase the sub-contractors’ costs and make it difficult for them to fulfill their contract obligations. “Both Salini and BEL are of the view that if the status quo continues, it will be difficult to complete the project within the set budget,” a Salini official said.

In addition, Salini fears that a number of suppliers and sub-contractors may not be willing to continue dealing with them due to the squabbles with URA. One of the conditions by the project financier was that local companies supply some of the construction materials.

However, Salini said, it is now considering contracting foreign companies to perform these tasks.