Uganda Revenue Authority goes after the Digital Economy: Payments Systems and third-Party Transaction Information in Tax Administration.

The bulk of these services are paid for through online payment systems operated by multi-national firms such as Visa and through local mobile money transactions aided by aggregators such as the financial services firm Pegasus Technologies.

These payment systems are also used to pay for services that do not necessarily fall under the digital services category.

An obvious example is a supermarket Point of Sale MoMo transaction.

Therefore whereas the digital economy is mostly composed of digital companies and the web-based commercial marketplace, the brick-and-mortar businesses are also covered since most now take payment through digital payment systems.

A recent tax dispute decided by the Tax Appeals Tribunal, in which a gaming firm had to fight off UGX 28 billion assessment in gaming tax and withholding tax, is a perfect demonstration for this. Refer to Massalia SMC Ltd v URA TAT Application 251 of 2024.

This assessment was raised largely on third-party data from MTN Mobile Money, Airtel Money and Pegasus Technologies and highlights the current push by the authorities to leave no stone unturned in taxing the digital economy.

Although the Tribunal considered whether such data, without corroboration from taxpayer records, is sufficient and reliable(Siding with the taxpayer that it was not). It must be emphasized that the evidential burden in tax litigation primarily rests on the taxpayer.

This is one of the borderline cases where the taxpayer gets away with not providing information as requested by the tax authorities and indeed the decision was not unanimous, with the Chairperson of the tribunal dissenting(she thought the tax should be collected as assessed).

The Challenge for Transaction-Heavy Sectors

Sectors such as E-commerce, Gaming, Financial Services (fintech), and Telecoms process hundreds of thousands and for some, even millions of daily transactions.

Unlike a few years ago when tax authorities had no means of scrutinising such an
overwhelming volume of transactions and to assess tax upon each and every one including the tiniest of transactions.

Currently, Tax Authorities are able to rely on advanced data analytics and the deployment of artificial intelligence tools to track tax on even the smallest of transactions.

Tax authorities are also able to build taxpayer profiles and raise assessments from
mountains of data obtained from third parties including payments and telecom platforms (e.g. MTN, Airtel, Pegasus), in some cases using monitoring systems such as the Telecommunications Intelligence Monitoring System (TIMS), which was originally designed for excise duty but is now adapted for broader oversight.

Globally, revenue authorities are already demonstrating how artificial intelligence (AI) and advanced analytics can transform tax administration. The UK’s Connect platform analyses billions of data points, including bank transfers, property records, and customs declarations, to detect potential underreporting.

URA’s partnership with RippleNami, a California-based technology company, to harness data integration (sometimes marketed as blockchain solutions) for building taxpayer profiles in the real estate sector has already borne fruit, with rental income revenue performance growing more than 100% each tax year.

• Kenya Revenue Authority (KRA) has piloted AI-driven risk profiling and data
  analytics to monitor VAT compliance. In Nairobi, property tax administration is
  increasingly linked to digital land registries and GIS mapping, with KRA
  experimenting with digital mapping to expand its real estate tax base.
  
• Rwanda Revenue Authority (RRA) has deployed advanced e-filing systems and
  is gradually integrating AI-based data analytics into customs and domestic tax
  processes, aiming for real-time risk detection.
  
• Tanzania Revenue Authority (TRA) has expanded its use of electronic fiscal
  devices (EFDs), integrated with mobile payment systems, to track sales data and
  improve VAT collections.
  

Without proper systems that can track every stake, payout, deposit, or transaction in real time, taxpayers are left vulnerable when tax authorities cross-check their tax filings against third-party platforms to raise additional assessments.

In practice, this means deploying Enterprise as well as Tax technology tools that:

• Integrate directly with EFRIS, payments services providers and other partner core business platforms.
  
• Automate reconciliation of high-volume transactions.
  
• Generate audit-ready reports aligned with the Tax Procedures Code Act
  record-keeping requirements.
  
• Preserve granular transactional data for the statutory five-year period.
  

I must point out that URA needs to ensure technology does not replace human
decision-making intuition and expertise in tax administration.

For taxpayers, reassurance and transparency as to the competence of the tax
administrators assessing them, as well as the integrity of the technology, and third party information deployed in raising assessments, are key.

If it is third-party data sought to be relied upon to conduct audits and raise assessments, then taxpayers deserve to interrogate the integrity of that data and confirm that the audits are premised upon objective, verifiable data and that they can challenge assessments with their own accurate records.

Conclusion

This commentary is written as a wake-up call for Uganda’s private sector and
especially for the data-driven sectors whose activities fall under digital and electronic services.

A large section of the economy is now powered by electronic data and naturally,
taxation of data-driven transactions will be driven by data analytics and technology and not manually generated spreadsheets.

The URA has already shown its willingness to leverage third-party data sources in
gaming, telecoms, and real estate and more sectors will follow.

Technology makes it easier to raise assessments relying on this data and so it is
important that taxpayer information is accurate and defensible in the face of a tax
dispute.

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