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Taxes blamed for failing SMEs
Founder. Ms Marion Busingye, founder and proprietor of Sheacare products in Uganda, explains part of the soap she makes out of shea butter. PHOTO BY ERONIE KAMUKAMA
What you need to know:
High taxes. Small businesses have been hurt by high taxes, limiting their growth.
Kampala. Taxation is among the top five obstacles affecting growth of Small Medium Enterprises (SMEs) in Uganda, a new study shows.
The new report by Southern and Eastern Africa Trade Information and Negotiations Institute (SEATINI), shows that small businesses have been hurt by high taxes, limiting their growth and competitiveness.
According to the study, this challenge is only second after macroeconomic factors which top the obstacle list.
“Majority of SME’s are not comfortable sharing their challenges about the matter largely due to the fact that they have resorted to cunningly dodging the tax system; something that has continued to undercut the capacity of their business growth,” the report said.
While releasing the report last week, Ms Faith Lumonya, a researcher with SEATINI, said another problem affecting SMEs is high cost and unreliable electricity, which she said is also insufficient.
She says a number of businesses are struggling due to the prohibitive nature of the current tax system.
“SME’s have the potential to contribute to growth of tax base. To achieve this, the tax system must contribute to a conducive business environment,” she said.
According to Ms Lumonya, over the years, Uganda has implemented various tax reforms in the SME’s category such as raising the VAT threshold from Shs50 million to Shs150 million.
However, while the current tax reforms have been administratively comprehensive, they have neither been focused nor driven by specific performance outcomes such as increasing the tax base. Instead they have mainly focused on meeting targets without taking into account the impact of the tax system.
While taxation can be a tool for development, it can also be harmful to progressive growth and development of SMEs.
Ms Lumonya noted that taxation can be used as a regulatory tool to provide a supportive ecosystem for SME growth and development.
Mr Cleophas Ndorere, the assistant commissioner for trade in Ministry of Trade, said SMEs do not understand tax regimes and do not keep records or books of accounts hence they miss out on tax waivers.
“In government, there is a preferential scheme where local companies are allowed or given first priority in winning bids and then supply government organisations so SMEs should take advantage of it,” he said.
TAX REFORMS FOR SMES
While the current tax reforms have been administratively comprehensive, they have neither been focused nor driven by specific performance outcomes such as increasing the tax base.
Instead they have mainly focused on meeting targets without taking into account the impact of the tax system.
