1. THE MISSING TRADER VAT FRAUD SCHEME-A CASE FOR UGANDA
By Shine Gava; Financial Crime Investigations

2. PRESENTATION OUTLINE Introduction The Missing Trader VAT Fraud Schemes
Characteristics - VAT Fraud Schemes
Challenges
Conclusion

3. Introduction - the VAT regime
Illustration 1
Genuine actual transaction
Sale Output VAT
Purchase Input VAT
Output VAT > Input VAT = Pay
Output VAT < Input VAT = Claim
Legal provisions
VAT Registration
Proper Tax Invoices
Taxable goods/services

4. The MISSING TRADER VAT fraud Schemes
Fictitious Companies
Fictitious invoices (Buy or sale of invoices)

5. MISSING TRADER VAT FRAUD SCHEME
FICTITIOUS COMPANIES
Fictitious purchases
Fictitious Tax Invoices
Fictitious Registration
Goods from Non Registered customers
Case scenario

6. MISSING TRADER VAT FRAUD SCHEME Cont.….
Fictitious Invoices (Buy or sale of Invoices)
Genuine Companies involved
Service companies for supply of goods
Fraudsters/Company auditors selling fictitious invoices
Several companies involved in buying input tax credit invoices
Construction companies claiming input on raw materials bought by clients

7. CHARACTERISTICS OF VAT FRAUD TRANSACTIONS
Huge cash payments
Orders made over the phone
Invoices generalized e.g. building materials, assorted items, radio equipment
Use of agents /brokers
Delivery on site
Emphasis is issue of invoices

8. Cash economy
Loopholes in the law
Illiteracy of some traders
Large Informal sector (approx. 50%)
Political instability in neighbouring countries e.g. South Sudan and DRC
Limited collaboration between the revenue agencies

9. CONCLUSION
Different VAT fraud schemes keep emerging; taking different forms in different sectors.
We need to be ahead of the fraudsters by;
Tightening our administrative measures,
Policies
Systems
Use full force of law to deal with fraudsters. The cases discussed are in court at different stages in the prosecution process

12. ILLUSTRATION 1: VAT REGIME
Co. A
Co. B
Co. C
Final consumer pay the VAT
B sells to C
Output VAT B & Input VAT C
A sells to B
Output VAT A & Input VAT B
C sells to final consumer
Output VAT C
NB: A,B & C are all VAT registered. 2. Co. B’s VAT payable = Output VAT B - Input VAT B,3. Co. C’s VAT payable = Output VAT C - Input VAT C 4. If B or C disappears , VAT is lost

13. ILLUSTRATION 2 TRANSACTIONS FLOW

15. 18% VAT Charged

16. VAT REGISTERED COMPANIES
NON VAT REGISTERED CUSTOMERS
VAT REGISTERED COMPANIES
RT Ltd
NL Ltd
LD Ltd
Individual X, Y
Individual V
Individual W

17. RT Ltd NL Ltd LD Ltd BROKER M BROKER R COMPANY Z COMPANY H
NL Ltd
LD Ltd
BROKER M
BROKER R
Companies Z and H are created. RT Ltd, NL Ltd and LD Ltd allegedly hire trucks from Z and H
COMPANY Z
COMPANY H

18. BROKER R
BROKER M
Use a broker M who issues tax invoices and receives cash payments
Broker M also has no knowledge of Z and H and uses Broker R
Broker R is unknown (Nonexistent)

19. FACTS ABOUT Z AND H Z and H are registered with URA
Z and H are not registered with URSB
Z and H used forged URSB registration details to register with URA
Directors are non-existent. Have Chinese names
Companies nonexistent at registered addresses
Z and H trade with each other. File returns online. Both in a VAT claimable position

20. ILLUSTRATION 3 USE OF FICTITIOUS INVOICES

22. GL LTD GL Ltd is a construction company
GL Ltd is well registered with URA and URSB

23. NON VAT REGISTERED CUSTOMERSAN
X, Y, Z
AN is the procurement officer of GL Ltd
Procures construction materials from X, Y and Z; non VAT registered customers
AN needs to claim input VAT credit on the purchases from NR customers

24. EK HK
H LTD
B LTD
AN connives with HK and EK, accountants of H Ltd and B Ltd respectively
Tax invoices are created allegedly from H ltd and B Ltd as the suppliers
HK and EK file returns and include the tax invoices created from a fictitious sale

25. B LTD
H LTD
The owners of companies H and B are not aware of the fictitious transaction
Directors of GL Ltd are convinced the purchases were made from H Ltd and B Ltd

26. GL LTD

27. Facts GL Ltd is a construction company
GL Ltd is well registered with URA and URSB
AN is the procurement officer of GL Ltd
Procures construction materials from X, Y and Z; non VAT registered customers
AN needs to claim input VAT credit on the purchases from NR customers
AN connives with HK and EK, accountants of H Ltd and B Ltd respectively
Tax invoices are created allegedly from H ltd and B Ltd as the suppliers
HK and EK file returns and include the tax invoices created from a fictitious sale
The owners of companies H and B are not aware of the fictitious transaction
Directors of GL Ltd are convinced the purchases were made from H Ltd and B Ltd
GL Ltd claims input VAT credit