Engen Oil In Shs12bn Tax Evasion Saga

Engen Uganda Limited has been implicated in tax evasion worth Shs12bn by Uganda Revenue Authority (URA).

The tax body says Engen evaded paying withholding tax on loan interest, management fees, imports and overdue VAT.

The other taxes include: VAT in respect of construction works for all Engen Petrol Stations, Capital gains tax payable on transfer of assets, payment on profits of the company, under assessment under VAT payment and evasion to remit Pay As You Earn (PAYE).

Engen Uganda Limited, formerly a subsidiary company of PETRONAS (Petroliam Nasional Berhad), a Malaysian state-owned oil and gas company, closed shop in Uganda in June 2012.

Oryx Oil & Gas, a subsidiary of the Addax and Oryx Group based in Geneva, on November 28, 2012 confirmed that it had acquired Engen Uganda Limited, as part of the plans to expand its downstream energy offering in Sub-Saharan Africa.

The share purchase agreement was completed on November 23, 2012, and Engen Uganda is in the process of being renamed Oryx Oil Uganda Ltd. The acquisition includes 10 service stations yet to be rebranded under the Oryx name.

A report dated December 12, 2012 by the Assistant Commission Corporate Affairs, URA says a withholding tax of $11,528 on loan interest payment has been evaded.

A Loan Agreement between Engen Offshore Holdings (Mauritius) Ltd represented by its Director, Ashraf Ramtoola and Engen Uganda Limited represented by Jackson Karyarugookwe was made on October 13, 2006 where the parent company lent out $2.5m. The loan was finally settled in October 2011, but the said tax has not been settled.

URA also points out evasion on withholding tax on management fees from 2004 to date. Engen Uganda Ltd has been paying management fees to Engen Petroleum Ltd (South Africa) on a quarterly basis and sometimes on a monthly basis without paying withholding tax on payments. Payments were made from Engen Accounts in Standard Chartered Bank and Stanbic Bank.

In a letter dated October 28, 2004 to the Head of Corporate and Institutional Banking of Standard Chartered Bank in Kampala under Reference: Transfer of funds from our shilling account no. 0104012485700, it says, “We wish to make a transfer of South African Rand ZAR263,798.10 in favour of Engen Petroleum Limited to the following address:

ENGEN PETROLEUM LIMITED-IBD

BANK: STANDARD BANK,

BRANCH: ADDERLEY STREET CAPE TOWN

BRANCH CODE 02000900

ACCOUNT NUMBER: 070054282.

Please debit our shilling account with the equivalent amount at the exchange rate of Shs281.00 to one South African Rand as agreed between your Annette Rumanyika and our Jackson Karyarugookwe.”

In another letter dated September 20, 2007 to the Head of Corporate and Institutional Banking of Stanbic Bank Uganda Ltd in Kampala under Reference: Transfer of funds from our account shillings Account No. 040064060301, it makes a transfer of ZAR290,602.45 in favour of Engen Petroleum Limited to the above address.

The letter adds: “Please debit our shillings account with the equivalent amount at the exchange rate of Shs248 to one South African Rand and all transfer charges are for the account as agreed this morning between our Nicholas and your Laetitia. Attached is our cheque number 005197 written in Stanbic Bank Uganda limited names.”

In an e-mail exchange in June 2006 between Molly-Rae Martin and Nicholas Ogola under subject: Intercompany payment, instructions were issued to their bankers to remit R942, 451.65 to IBDD (International Business Development Division)’s bank account. Molly, finally thanked Nicholas and requested to be faxed a copy of the Banks transmittal form.

In another e-mail communication to Ogola from Ncane Sithebe, the Accounting Manager IBDD Business Controls, Engen Petroleum limited, he says: “Please find the actual service fees and entry for the last quarter of 2007.” The actual service charge Q4 2007 is ZAR158, 301.58.

The URA report further states that in 2010, Ernst & Young did a tax health check and found out that Engen Uganda Ltd was liable to paying Shs180m in overdue VAT and other taxes which is unpaid and remains so to-date.

According to the audit check, issues identified were ranked as high, medium and low. Among those ranked high were: Payment on gross duty account not captured by URA and VAT on imported services.

On clearing of products at the border entry points of Malaba, Mutukula and Busia, the review indicated some large payments made by the company were not reflected as received on the GPA.

It was recommended that payments made should be followed up with URA at the earliest opportunity available to reduce the company’s exposure to the risk of loss of the related amounts.

Also, the audit firm observed that while accounting for VAT on imported services, Engen claims 100% of the input VAT credit on self billed invoices. This implied Engen thus understated its VAT payable in the year which is an exposure to the company. The recommendation was that management should ensure that the arising tax liability is settled and that subsequently VAT on imported services is correctly accounted for.

The document further notes that withholding tax and VAT in respect of construction works for all the Engen Petrol Stations has not been paid. All petrol stations (9 in total) were built by International Quality Surveyors (IQS) based in South Africa. Payments made by Engen Uganda Ltd on construction disguised as re-imbursement to Engen Petroleum South Africa, the parent company.

A letter to that effect dated June 25, 2009 was written on the IQS headed paper to the parent company; Attention: Mr C van Niekerk, under subject: Uganda: Kiwatule Engen Service Station – Archtect Professional Fee (Thembela) Payment Valuation No. 1-Revised. It says, “Find herewith included our valuation for payment certificate on the above-mentioned project. This valuation is based on information available to the quantity surveyor to date. We trust that you will find this in order. Yours faithfully, IQS,” the concludes and is signed by F. Bruwer and BG Van Rooyen . The payment certificate indicates a total of R57,000 including VAT of R7,000. This communication is followed up by e-mail exchanges to confirm payment.

According to the document, Capital gains tax payable on transfer of assets from Engen Petroleum Uganda Ltd to Addax – the new owner has not been paid. Engen Uganda Ltd is reported to have been sold to Addax at USD16.8m in November, 2012 including 10 service stations, namely: Kiwatule, Lugogo, Luzira, Bunga, Sir Apollo, Rubaga, Bukoto, Iganga, Naalya and Kazinga.

Also, payment of taxes on profits of the company have been evaded. The document says since 2003, when Engen Uganda opened shop, the company declared losses year after year when in fact it was making profits. The company kept repatriating all profits in the form of intercompany payments (from Engen Uganda to Engen Petroleum Ltd (South Africa). As such profits were transferred back to South Africa disguised as expenses and or losses as shown in the intercompany payments above.

The document also indicates that between 2007-2010, Engen Uganda bought bitumen from Oil Tanking EPZ (Kenya) another Engen operation. EPZ was invoicing in US Dollars, yet on declaration at Busia/Malaba border, value was in Kenya Shillings in some of the consignments. This resulted in Under assessment, Under VAT payment and Withholding tax not paid on imports.

Here, it confirms that Engen possessed 2 TIN numbers, namely: TINs BO2-1008-3643-T (No exemptions) and BO3-1008-3643-T (exempted Engen from both withholding and VAT taxes). In certain cases, Engen would use BO2-1008-3643-T at Malaba which attracts withholding tax and domestic VAT but in Kampala register the entry using BO3-1008-3643-T which exempts both taxes.

An e-mail communication between Birungi Hilary, Agnes Bwire and Dominic Mugesera further confirms existence of the two TIN numbers.

One of the exchanges says, “Dominic, Please we urgently need a cheque in the names of URA to clear shop fittings for Kazinga to a tune of 35,609,900.09.”

In reply, Agnes Bwire says, “Dear Hilary, On checking in the ASYCUDA++ system we realize that you have two TINs BO2-1008-3643-T and BO3-1008-3643-T.

Your agent KenFreight has used BO2-1008-3643-T at Malaba which attracts withholding tax and domestic VAT.

We have now registered the entry using BO3-1008-3643-T which exempts both taxes. However, customs may need an explanation why we are using different TINs in Malaba and Kampala.”

Finally, the former employees of Engen are not settled, for they have established that there are several months in which Engen Uganda did not make NSSF remissions and yet circulated payslips indicating that it had made the remissions. The documents indicates URA suspects the company did not make PAYE contributions in the same months. As such there is a real possibility of tax evasion in those moths referred to.

Reported By By Alfred Wandera & Malime wa Gamusi

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