As Uganda government continues to devise means of increasing domestic revenue to finance the economy’s needs, Uganda Revenue Authority says Uganda’s potential of increasing domestic revenue lies in indirect taxes.
Indirect tax is a tax levied on
goods and services rather than on income or profits. The indirect taxes allow
the government to expect stable and assured returns through the public.
Speaking at a high-level policy dialogue on the National Development Strategy on December 12, the Commissioner General of Uganda Revenue Authority, Ms Doris Akol, said for Uganda like any other Sub Saharan African Country, wants to increase indirect tax to raise domestic revenue.
“Our growth potential in domestic revenue mobilisation is in indirect tax,” she said.
However, Ms Akol said 70 per cent of the corporation tax has been eroded by incentives to attract investors, adding that there is 40 per cent coming out of the under-declared taxes, which is affecting revenue mobilisation.
Taxes are an involuntary fee levied on individuals or corporations that are enforced by a government entity, whether local, regional or national to finance government activities.
Taxes are the basic source of revenue to the government which can be utilised by the government for its expenses such as defence, healthcare, education, different infrastructure facilities like roads, hydroelectricity power dams, highways, airports railways or water transport among other things.
Ms Akol said: “If we are to increase the tax, people need to pay the required taxes and the ratio of taxes have to rise.”
Before the rebasing of Uganda’s Gross Domestic Product (GDP) by Uganda Bureau of Statistics (UBOS), Uganda’s tax ratio to the GDP was at 15.1 per cent, however, after rebasing, it has dropped to 12.9 per cent.
Ms Akol explained that the drop in Uganda’s tax ratio to GDP is because growth in the economy was in non-tax contributory sectors of the economy. As such, the level of tax ratio to the GDP dropped.
She said Uganda’s source of revenue for tax is in VAT, PAYEE, and Corporation tax.
Concerning how Ugandans are doing business, Ms Akol said: “Most people are doing business as a gamble or trial. 20 per cent of the business people in Uganda are not keeping business records and only 30 per cent are servicing their loans.”
Mobilising tax revenue is key if developing countries like Uganda are to finance their investments in human capital, health and infrastructure.
Re-think tax incentives
Speaking during the dialogue, the International Monetary Fund resident representative in Uganda, Ms Mira Clara, said as government begins laying out funding strategies for the next 2020/21 budget, government must re-think about providing tax incentives to investors.
“The government must look the tax incentive policy very carefully because a lot of money is being taken away yet there are big financing needs in the country,” she said.
The Commissioner Macroeconomic Department in the Ministry of Finance, DR Albert Musisi, said the National Development Plan Three is coming into force in the next budget of 2020/21. As government explores options to finance the budget using domestic revenues, “Tax revenue is the best and safest financing option.”
The executive director of Advocates Coalition for Development and Environment, Dr Arthur Bainomugisha, said there are still challenges that government must address for Uganda to achieve Vision 2040.
Options of raising domestic revenue
The other option is grants though these often have conditional ties from development partners and are usually earmarked for social projects.
“Besides the conditions that come with grants, the level of grants to the government has dropped from 7 per cent of the GDP to the current 1 per cent,” he said.
Dr Musisi said the third option of financing the budget is through debt, which involves concessional loans, semi-concessional debt from bilateral creditors, commercial debt (non-concessional debt) and domestic borrowing.
“Other financing options include conventional financing, alternatives, Public-Private Partnerships, liberalisation of the pension sector. Pension sector and provident are other sources of financing that can be tapped into for long-term funds and infrastructure bonds,” he said.