The chances of eliminating Uganda’s Ush270 billion ($105 million) tax deficit during the final quarter of 2013/14 appear slim, mainly due to a drop in corporate tax collections.

But the Uganda Revenue Authority said more aggressive collection of arrears in April and May could reverse fortunes, as transfer pricing audits pile pressure on multinationals.

The URA is also banking on tighter verification of taxpayers’ declarations across various sectors to bridge the revenue gap before the end of June amid signs of weak economic activity.

The deficit covers the period between July 2013 and February 2014, according to latest data from the URA. Corporate tax collections amounted to about 39 per cent of the February target alongside withholding taxes that yielded 76 per cent of the target during the same month.

Under these circumstances, URA needs to raise an extra Ush90 billion ($35 million) per month until June in order to eliminate this deficit, a seemingly tall order based on February returns.

All the major tax heads except Pay As You Earn (PAYE) posted total collections below Ush90 billion ($35 million) in February, a sign of diminished revenue growth recorded in many sectors.

PAYE grossed Ush116.52 billion ($45.5 million) against a target of Ush105.10 billion ($41 million), and excise duty of Ush47.01 billion ($18 million) in February.

Tax experts argue that the dull economic activity and reduced cashflows experienced by several firms since last year may erode the chances of bridging the revenue deficit in the current quarter. Depressed corporate budgets are also blamed for the grim outlook.

Though some lending rates fell to a record low last month, Bank of Uganda (BoU) economists say this trend is likely to benefit individual borrowers and manufacturers, leaving out other sectors.

Interest rates on shilling loans averaged 20.8 per cent in March — their lowest level recorded since 2012 — but this development has favoured personal and manufacturing loans, while the trade and construction sectors are yet to benefit from this trend because of a preference for dollar denominated loans, according to Adam Mugume, BoU’s executive director for Research.

Lower lending rates are deemed critical for stimulating revenue flows, with many local businesses borrowing regularly to finance import orders and meet working capital needs.

ALSO READ: Weak buying power took toll on firms

Nevertheless, URA is betting on tougher enforcement of transfer pricing rules and verification exercises carried out on taxpayers’ returns to eliminate the deficit.

Tighter guidelines recently implemented on transactions done between foreign companies and their local subsidiaries have raised substantial tax revenues from less compliant firms and prompted changes in accounting habits, tax experts claim.

“Previously, some taxpayers were carrying out third-party transactions and not paying relevant taxes. Consequently, accountants employed in local subsidiaries are asking more questions about transactions originating from foreign headquarters in an attempt to avoid penalties levied by URA,” said Plaxeda Namirimu, Tax Director at PWC Uganda.