Will URA go for the partners in Capital Chicken scandal? 

Recently, thousands of Ugandans have been fleeced of their hard-earned money by an illegitimate chicken investment scheme called Capital Chicken.

The ‘investment scheme’ operated in such a way that individual investors were lured into investing amounts between Shs 1 million and Shs 100m on the basis that Capital Chicken would offer them a profit of between 40% and 100% on top of the sum that was invested. where one invested Shs 10m, one would allegedly earn Shs 1.5m per month.

It is this money that was to be used to invest in a poultry scheme on behalf of the individual investors who wished to earn income from poultry farming without directly engaging in the physical activities involved in the business. In other words, an investor would sit back as their investment made money for them.

Capital Chicken, on the other hand, was meant to provide the requisite skills, land, market and time to carry out the agribusiness on behalf of the investors. In the end, according to police preliminary investigations, Capital Chicken had accumulated a total of approximately about Shs 1.64 billion ever since it started its operations in 2021.

Unfortunately, after accumulating this money, Capital Chicken closed its known operation centers around Kampala and allegedly disappeared without ever refunding its investors or rewarding them with their profits. This is not the first time that such a scheme of such a nature has fleeced billions out of Ugandans.

In 2018, the Financial Intelligence Authority released a report indicating that about 18 ponzi/ pyramid schemes had defrauded Ugandans in 15 years. These included World Global Mobile Network, Telex Free and Adfast Inc, among others.

Regrettably, even when the Financial Intelligence Authority (FIA) released this report addressed to the Clerk of Parliament, there hasn’t been any change in the laws to outlaw such fraudulent investments.

In order to operate business in Uganda, one needs approvals from several licensing bodies like Uganda Registration Services Bureau (URSB), Uganda Investment Authority, KCCA, URA. Capital Markets Authority (CMA) and FIA may also come in where the investment deals with securities, bonds or has an aspect that could lead to money laundering.

It would, therefore, be safe to say that in the case of Capital Chicken, the documentation and all other information on how it commenced its operations can be easily accessed from one of these entities.

The CMA, the FIA and URA all have investigative powers that can be used to access the financial records of any company in instances of fraud. However, it is only URA that has additional prosecution powers. In as much as the prosecution powers of URA are restricted to tax related offences it can be argued that the actions of Capital Chicken were particularly misleading as to result in tax fraud that is punishable under the law.

The tax implications of this scheme cannot be ignored. First, Capital Chicken was obtaining income from these investments that constituted business income which it ought to have disclosed in its tax returns.

My bet is that it did not disclose any of this income as it operated clandestinely to prevent raising eyebrows. Disclosing its income would have put it within the purview of URA. The second and most vital tax implications is that taxpayers who lost money to this fraudulent scheme will claim income tax deductions for the losses they incurred while dealing with Capital Chicken.

Income tax laws permit a person to deduct any expenses and losses incurred in the production of income included in the gross income. Shrewd taxpayers, especially those with proper documentation, are most likely to capitalize on this and claim deductions for the money they lost while trying to invest in the scheme.

Thirdly, some of the victims of the scheme account for taxes on an accrual basis. This means that they reported expected earnings from the scheme as income in their financial statements and subsequently filed returns. Where these expected earnings do not materialize, these victims would have to amend their returns and remove the earlier declared income.

It is, therefore, incumbent on URA to investigate the extent of the operations of this scheme to prevent the far-reaching tax repercussions of one of the largest frauds in Uganda.

These tax investigations should relate to whether Capital Chicken registered for taxes and if it did, there’s need to find out if it ever filed returns or let alone maintained proper records. In absence of these, URA can go ahead to prosecute its partners.

When Barnie Madoff pulled off the largest Ponzi scheme in the early 2000s, he was prosecuted and sentenced to 150 years in prison where he died in 2021.

In Uganda, where a tax offence is committed by a partnership, the partners become jointly and severally liable for that offence. In other words, each partner is treated as having committed the offence.

In this case, the partners of Capital Chicken would be charged and prosecuted if URA’s investigations establish that it was involved in any tax fraud. This would prevent similar schemes from happening in future.

The writer is an advocate of the High Court and a tax expert.