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We will ‘aggressively’ cut tax arrears, govt tells IMF
URA has been using several measures such as voluntary declarations to reduce tax arrears. Photo / File
What you need to know:
- Government also intends to “forcefully” implement the domestic revenue mobilisation strategy to achieve a target of 0.5 percent of gross domestic product ratio annually
Government has said it will “move aggressively to reduce tax arrears and prevent further accumulation” as part of plans to reform tax administration.
The commitment forms part of priorities through which government is seeking to enhance tax value and volumes in the 2024/25 financial year.
This also feeds into government’s plan to realise an annual tax-to-gross domestic product ratio of 0.5 percent.
Government, going forward, details submitted to the International Monetary Fund (IMF) indicate, will also seeks to improve tax efficiency by fast-tracking the e-tax system.
Other commitments include enhancing the income tax system, improving the excise duty regime, and strengthening value added tax productivity to increase taxpayer registrations and tax administration.
In details contained in the fifth review under the Extended Credit Facility Arrangement, government informed the IMF that it intends to be more ‘forceful’ in increasing domestic revenue to reach intended targets.
“With economic recovery now on a strong footing, the authorities [government] intend to be more forceful in implementation of the domestic revenue mobilisation strategy to achieve a target of 0.5 percent of gross domestic product ratio. They are currently studying recommendations … with a view of proposing tax policy and revenue administration measures to feed into the 2024/25 [financial year] budget discussions,” the review reads in part, noting that Uganda’s current tax to gross domestic product ratio, which the government says stands at 14 percent, was lower than regional peers.
Data indicates that Rwanda and Kenya have a tax-to-gross domestic product ratio of 15 percent, while Tanzania stands at 12.4 percent.
The IMF thus noted that there was need to prioritise reforms under the domestic revenue mobilisation strategy to rationalise tax expenditures and improve revenue administration, where estimates suggest large potential gains, as well as eliminate untargeted exemptions and collection inefficiency, which result in a low tax-to-gross domestic product ratio.
In a letter of intent co-signed by Finance Minister Matia Kasaija and Bank of Uganda governor Michael Atingi-Ego, government told the IMF that it had conducted a review of the domestic revenue mobilisation strategy and would among others, prioritise reforms around tax administration to increase taxpayer registrations, tax administration processes, and compliance as well as move aggressively to reduce tax arrears and prevent further accumulation.
Government is making several commitments through which it will, going forward, seek to increase the tax-to-gross domestic ratio by 0.5 percent per annum to achieve a ratio of between 16 and 18 percent.
It is also working on formulating a compliance improvement plan for large taxpayers with focus on specialized sectors and taxation of multinationals.
However, IMF noted that for URA to achieve the intended targets, it must transform to support good international practices across the compliance continuum and promote voluntary compliance by focusing on taxpayer perceptions and confidence in the revenue system and administration.
