Here’s how govt can broaden its tax base  

When it comes to broadening its tax base, Uganda usually grapples with a bad case of cognitive dissonance. At a post-budget dialogue last Friday, the Finance ministry’s top technocrat made it abundantly clear that commercial agriculture—a soon-to-be beneficiary of an infusion of Shs2.7 trillion in the Financial Year (FY) starting July 1—has to start pulling its weight. This—it must be noted—goes without saying, so much so this newspaper does not hesitate fighting treasury secretary Ramathan Ggoobi’s corner. The million dollar question, though, is whether the government will or, more appropriately, can walk the talk.
While your guess is as good as ours, what is not in doubt is the effect of the regressiveness of Uganda’s tax system. Its heavy reliance on consumption taxes such as value added tax (VAT) and excise duty (plus import duties) means that the poor will continue to feel the pain most. Government functionaries were a few months ago increasingly strident in their opposition to a tax on animal sales safe in the knowledge that—as Agriculture minister Frank Tumwebaze articulated—end products like milk, yogurt, and ghee are taxed. It is, however, the poor that shoulder this suffocatingly large tax burden because they spend the vast bulk of their income on goods from commercial agriculture that are subject to VAT.
Owing to this, we continue to call for a progressive income tax regime. It is rather unseemly that a tea factory would pay less tax than a tea picker, as indeed is the case in Uganda. This is thanks in no small part to tax avoidance tactics as well as tax exemptions that are anything but well thought out.
While Finance minister Matia Kasaija has promised to explore the twisting network of tax exemptions more robustly during FY 2023/2024, few Ugandans are holding their collective breath. The beat will surely go on. This newspaper agrees with President Museveni that having a tax revenue that oscillates somewhere between 12 percent and 13 percent of gross domestic product is embarrassingly low. Consequently, the tax collection capacity has to be built with an iron grip.
While the taxman has made clear that it will be fearsomely built to enforce in FY 2023/2024, we reckon its tax inspectors should be strengthened to be able to administer and collect more complex forms of tax. This should for one include a wealth tax. The poor should not be the only ones to be hit hardest by the taxman’s aggressiveness as the recent Electronic Fiscal Receipting and Invoicing Solution or Efris advertisements seem to suggest. The government ought to make good on its promise to broadly fight tax avoidance and tax evasion. By broad we mean that the undertaking should apply to all Ugandans; not just the poor who have over the years come to typify low-risk targets.
At any rate, the government should spare no effort in ensuring fair taxation. If its functionaries do not dispense with showcasing cognitive dissonance, domestic resource mobilisation will continue to be assailed by some familiar problems.