Gov’t advised to change tax systems amid low revenue collections

Kampala, Uganda | THE INDEPENDENT | An expert study has recommended that the Uganda Revenue Authority be transformed into a statutory agency with more powers on the policies that govern tax administration.

Currently, the URA lies under the direct supervision of the Ministry of Finance, Planning and Economic Development, which is responsible for appointing the Commissioner-General as well as setting annual revenue collection targets for it.

But according to the Fair Tax Monitor Report 2021, a partnership between the EU and NGOs like Oxfam in Uganda, SEATINI, and Tax Justice Network Africa, among others, having URA as a statutory agency could lead to, not only increased tax revenue levels but also enable the government to make more realistic plans and targets.

The Fair Tax Monitor is a research tool that identifies the main bottlenecks within the fiscal policies and systems and assesses their redistributive qualities and makes recommendations for change. The lead researcher Daniel Lukwago of Maarifa-Consult, gave the example that the Ministry of Finance gives URA targets to meet and yet it is the ministry that formulated the revenue areas too.

This according to him, makes the URA appear an ineffective body when it fails to meet the targets.

Lukwago also tasked the parliament to be more involved, after scrutinizing and debating, in setting the targets given to the URA. He says the parliament should also compel the ministry to explain why the targets are never met.

Failure to meet the targets usually means that the government will either borrow more to meet its budgetary needs, make budgetary reallocations, or even budget cuts. Oxfam Uganda Country Director, Francis Odokorach says even the budget cuts or reallocations affect the poorer people.

The report largely condemns what it calls unfairness in the tax system which enhances Uganda’s socio-economic inequality. The tax system encourages indirect taxes which account for the bigger part of the tax revenues.

However, there is continued ‘regressivity’ of the tax system, affecting low-income earners, especially women, children and other marginalized groups. Indirect taxes contributed to 64.42 percent of Uganda’s total tax revenue in financial year 2020/21, but the report says the poorer people pay more than their rich counterparts when accessing goods and services.

An example is the 0.5 percent levy on Mobile Money withdrawals, the payment platform being more common with lower income earners than the rich. Paul Lokuma, a macro-economic expert at the Economic Policy Research Centre, says the problem is there are too many people in Uganda who should be taxed and yet they are not.

He says even where taxes like excise duty on essential goods like sugar affect the poor more than the rich, they consume the same good or service.

“The government has generally ignored calls from international organizations such as the IMF and UN for countries to adopt progressive tax measures to fund social support programmes for low-income households to cushion the effect of the COVID-19 pandemic,” says the report.

Instead, the report says in the financial year 2021/22, the government instituted numerous tax measures to collect more taxes without evaluating their impact on people, especially low-income earners. “For example, an additional 100 Shillings per litre of gasoline and diesel excise duty levy increased the cost of transport, and a 12 percent excise duty levy on internet data and 12 percent VAT on telecommunication services increased the cost of communication.”

This made it even harder for poorer children to access education online which had been adopted by many teaching institutions during the lockdowns. Susan Nakagolo, Principal Economist at the Ministry of Finance, admitted that there are cases of unfairness in the tax system, but that they can only be improved, not abolished.

“Indirect taxes like excise duty and VAT usually have a negative impact on vulnerable groups including women and girls. Since we cannot deal away with them, we need to find ways to make them fairer,” she said.

Economist and University lecturer Dr Fred Muhumuza, agreed that the policies are letting off the rich without paying taxes. He gave an example of street vendors who are banned from conducting their businesses, yet they deal in taxed goods, while on the contrary large agricultural entrepreneurs are not taxed.

The Minister of State for Finance, Henry Musasizi welcomed the report and said it will help the government when coming up with future budgets. He admits that the recent resource reallocations have affected the already marginalised groups more, adding that going forward, the Local Revenue Mobilisation Strategy currently being developed will help direct resources more equitably.

He also reiterated the government’s plan not to introduce new tax measures or increase the existing rates but said that instead, the expected revenue growth will come from stop-gap measures and closing revenue leakages.

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