John Robert Tenywa
According to the Uganda Revenue Authority (URA) tax register (2023), there are approximately 3.5 million taxpayers in the country out of an estimated population of about 46 million people. Of these tax payers, only 194,143 are non-individuals (enterprises), while 3,306,151 are individual taxpayers. This meagre number implies that less than 10 percent of the population contributes to tax revenue.
A further analysis of the data in terms of sectoral contribution reveals that the wholesale and retail sector dominates the country’s tax base. The sector accounts for more than 40 percent of the country’s taxpayers, totaling over 1.4 million of the 3.5 million taxpayers.
As a result, this sector undeniably stands out as the primary target for revenue collection efforts because of its large tax base. Unlike other sectors, the implementation of tax compliance systems in the wholesale and retail trade can lead to substantial revenue gains for the government, highlighting the recent mandatory requirement by government for the trade operators to use the EFRIS system.
This contrasts with other sectors in the economy, particularly the agricultural sector, where many individuals in the sector operate at a subsistence level, producing primarily for personal consumption and selling only a small surplus locally. This subsistence nature of agricultural production provides little incentive for formalization and for the government to efficiently employ tax compliance systems.
This has, however, become a source of burden to the wholesale and retail sector, as it then forms an easily accessible tax base for the government when there is a need to increase revenue. Traders typically operate in cities, towns, and markets, making them easier to track and regulate in accordance with tax guidelines.
That is why the current initiatives to expand the tax base are inherently biased towards this sector. A case in point is the Tax Registration Expansion Program (TREP) that employs intensive fieldwork and data-driven registrations to grow the tax base. Although TREP has led to the expansion of the tax base, this expansion has majorly resulted from the wholesale and retail trade sector, highlighting this as their primary focus for the reasons mentioned above.
Furthermore, the mandatory implementation of the EFRIS has been primarily imposed on the wholesale and retail sectors. This system extensively targets the trade sector by tracking every sale, aiming to improve taxpayer declarations and VAT compliance. However, trade operators feel that this system increases their tax burden rather than simplifying tax collection efforts, leading to recent tensions over EFRIS.
From the perspective of wholesale and retail traders, this discontent is understandable as these systems disproportionately focus on their sector, increasing their tax burden while offering little incentive for individuals and businesses in other sectors to formalize. A more equitable strategy is needed, one that not only expands the tax base but also ensures a more even distribution of taxpayers across sectors. Prioritizing the formalization of businesses across all sectors could be an effective solution to tackle this prevailing challenge.
Implementing policies to formalize businesses could include providing incentives for registration, tax gaps, offering support and resources for small businesses, and simplifying the registration process.
By doing so, the government could encourage more businesses to enter the formal economy, thereby broadening the tax base. Until such measures are implemented, any efforts to enhance tax compliance will inevitably further burden the wholesale and retail trade sector, creating more tax struggles.
This approach not only alleviates the pressure on wholesale and retail traders but also fosters a more equitable tax system. Therefore, while the government is right to seek new revenue avenues and enhance existing collection systems, a long-term solution lies in formalizing businesses across all sectors so as to increase the tax base.
Mr John Robert Tenywa, researcher, London School of Economics. [email protected]
