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Uganda revenue collection supressed by narrow tax base
Left to Right: URA officers James Kisaale, Julius Nkwasire, Asadu Kisitu and Dustan Luwaga at a press briefing. FILE PHOTO.
What you need to know:
Low compliance, poor enforcement and several tax exemptions in Uganda’s tax laws explain the country’s narrow tax base. Consequently, the country’s tax burden is borne by a very small proportion of the population primarily the large formal sector firms, government and private sector employees. Ismail Musa Ladu explains how this has affected revenue collections
In the financial year 2016/17, government is expecting URA to collect Shs12.9 trillion. To consistently beat its target, most times with surpluses, Uganda Revenue Authority (URA) often spends sleepless nights figuring out how to maintain and ensure total compliance.
Since its reformation slightly over two decades ago, the tax Authority has increased its annual revenue collections despite the static revenue collection base.
In the previous five financial years, the tax collector recorded surpluses three times and in the two occasioned where it registered a deficit, URA revenue records indicates that the tax collection overall improved compared to the same period previously.
According to URA data, the targeted collection for the FY 2015/16 was Shs11.3 trillion. In the first nine months (of the current FY), total net revenue collections were Shs8.1 trillion, with a deficit of nearly Shs195 billion.
However, Ms Doris Akol, the URA commissioner general, said she is confident that by the close of revenue collection calendar, which is end of this month, she would have achieved her set targets.
In the Financial Year (FY) 2014/15, URA was expected to collect Shs9.5 trillion, which she collected with the magnificent surplus of Shs139 billion, representing a revenue growth of 20 per cent. This was the biggest surplus registered in URA.
The collection represents a growth of 19 per cent over Shs8 trillion collected in the previous FY (FY2013/14).
This was expected to contribute 78 per cent to the domestic revenue budget and 63 per cent to the total budget that includes external financing.
But before that, the tax body closed the financial year 2013/14 with a Shs500 billion shortfall, the biggest revenue deficit in over a decade.
According to the tax body revenue performance data, during the aforementioned financial year, URA was expected to collect Shs8.5 trilion but it collected just slightly more than Shs8 trillion. The revenue collected was, however, able to finance nearly 72 per cent of the country’s national Budget.
FY 2012/2013 was also a difficult year as URA recorded a shortfall of slightly Shs135 billion in revenue collection, despite a growth in revenue of 16.5 per cent over nominal collections realised in FY2011/12 which saw the tax body close its account with a surplus just like the previous year—FY 2010/2011.
Challenges of narrow tax base
Compared to Kenya, Tanzania and Rwanda, Uganda’s tax contribution to GDP also known as the gross domestic product, is the lowest.
Speaking in an earlier interview, Mr Muhammed Ssempijja, the Ernst & Young tax partner/country leader, said the revenue collections suffered from what he described as a structural problem.
He said: “The economic environment is not attracting and retaining enough investment. This means that the tax base is not expanding because there are fewer players.”
The country’s tax contribution to the GDP is hovering at between 12.5 to 12.9 per cent. GDP refers to value of goods and services produced in a country over a period of time, which could be either quarterly or annually.
As long as the tax contribution to GDP remains static, tax analysts like Mr Ssempijja argue that collecting revenue to fund the national Budget will always be a difficult task given that there are fewer economic activities that can generate sufficient income which the tax body can accrue revenue from.
Going forward, Mr Godfrey Akena, the executive director of East African School of Taxation, said: “The tax base must be widened by bringing the informal tax payers who earn so much money, into the tax bracket.”
According to the Annual Economic Performance Report 2012/13 by the Directorate of Economic Affairs at the Ministry of Finance, Planning and Economic Development, the tax to GDP ratio is below 13 per cent, which continues to be low by regional and international standards.
URA tax collection strategies
•Massive taxpayer sensitisation and education on tax policy changes.
•Strengthen international taxation (multinationals) function.
•Expand taxpayer registration and expansion programme outside greater Kampala.
•Expand rental registration outside Kampala.
•Automated information exchange and enforcement collaboration between Ministries, departments and agencies within greater Kampala.
•Implement joint compliance campaign for fast-growing priority sectors with high revenue contribution.
• Fully implement the single customs clearance.
