Prime
The NRM’s weak govt and revenue collection
Author: Moses Khisa. PHOTO/FILE
What you need to know:
- ... a government truck implicated in smuggling. Yes, a government vehicle was found transporting timber but beneath, buried in the bulky wood, was contraband.
The capacity to generate state revenue is by far the most important task of any government, and taxes constitute the primary source of that revenue.
To assess, impose and ultimately collect taxes requires systematic and serious organisational capacity. There has to be a robust bureaucracy and an efficient coercive state apparatus because the average citizen must be compelled to give up part of their income in form of taxes, especially direct taxes on personal incomes and properties. Only the most patriotic of citizens pay taxes without threats of sanction or coercion.
Some of the taxes the government collects are low hanging fruit, like the indirect taxes rolled into the essentials we consume daily. But even these require the government to keep close tabs on businesses that collect taxes through prices and who must remit that revenue to government.
To collect all the taxes it needs to, a government must register all taxable businesses and individuals, organisations and properties. It must have a thorough system of tracking business volumes, earnings and incomes for persons and companies to determine their tax liabilities and compel them to pay if they default.
Historically, government and state as we know it today in the modern (European) form emerged out of the crucible of war and taxation. The imperatives of war, the existential demands of having to fight off enemies and avoid being conquered, compelled state builders to device systems of extracting revenue from people under their jurisdictions to fund war activities.
On their part, community members, especially merchant classes, felt the obligation to pay taxes and fund state war operations so as to get personal security and protection for their businesses. It is instructive, for example, that in Prussia (what became present-day Germany), revenue collection was under the most powerful ministry called ‘war ministry’!
After coming to power, President Museveni understood early on that his government had to sort out the critical issue of public revenue in a country where the central state had decayed and nearly collapsed.
Import and export taxes had been the primary source of government revenue going back to colonial times, but smuggling deepened during the Idi Amin years and through the 1980s. Something had to be done.
The Special Revenue Police Services (SRPS) was created. Forget the name ‘police services’. It was a military outfit, commanded by an army officer, Kale Kayihura, and its operations were conducted by soldiers.
SRPS was notorious and dreaded. It used live gunfire to chase after smugglers. In my village in Bubulo, Mbale, we lived through its war-like operations being on the route to/from the Lwakhakha border post.
But the crucial move Mr Museveni took in his state-building processes was the creation of Uganda Revenue Authority (URA) as a semi-autonomous revenue agency. In a recent article, columnist Charles Onyango-Obbo praised Museveni for doing something that no one had done on the African continent with setting up URA.
It is actually not true that URA was Mr Museveni’s innovation or that it was unique to Uganda. The idea of autonomous revenue agencies had been implemented elsewhere since at least the early 1980s.
It started in Latin America, and in Africa it was Ghana that led the way at behest of the World Bank. It is precisely why the founding head of URA was a Ghanaian expatriate, Edward Larbi-Siaw, who most likely was hired with the influence of the bank and to bring in experience from Ghana.
Yet, despite Mr Museveni’s appreciation of the centrality of revenue collection, even after progressive reforms that included creation of URA as a corporate body presumably insulated from political actors, with SRPS tasked with crackdown on smuggling and tax evasion, Uganda’s performance remained less than impressive.
One measure that is used to determine how well a government is able to tax is what is called the tax-to-GDP ratio, that is, the percentage of the economy that is reflected in taxes collected. For many years, this ratio has stagnated at about 13 percent, which is below the same for most regional peers and way lower than the average for the African continent.
For a long time, URA was infamous for endemic corruption. After a judicial commission of inquiry, and ostensibly with reforms undertaken that included new leadership, things appeared to get better at the tax body. But not quite. URA’s performance in tax administration and enforcement speaks a great deal to the dismal failure of Museveni’s government to marshal a functional state and efficient government. The underlying explanation is what I shall turn to next week.
But to flag the crux of the issue, consider a recent absorbing investigative story in the Daily Monitor about a government truck implicated in smuggling. Yes, a government vehicle was found transporting timber but beneath, buried in the bulky wood, was contraband. Not for the first time with the same truck, apparently. Who is the culprit, the story alluded to a decorated bush war army General!
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