Can Ugandans tax burden get any worse?

Kampala, Uganda | THE INDEPENDENT | How does it matter that the tax on an individual’s contributions to the National Social Security Fund is deferred to the time of withdrawal of the benefits, as had earlier been proposed by the NSSF?

The media reports that the government plans to tax the NSSF savings has been interpreted and criticized by the public as a plan to add another tax on the already too many taxes that Ugandans incur.

Direct taxes are largely abhorred because their impact on an individual’s income is immediately visible, one of the reasons why taxes like graduated tax are fought, as at least happened in Uganda.

The government almost every year introduces new tax measures and they are based on the prevailing socio-economic circumstances or the budgetary needs of the government.

While this might be the practice in most countries across the world, Uganda’s economic planning machinery is blamed for introducing measures that seem to add the burden on the already burdened small group of Ugandans.

This is blamed for the persistently low tax to GDP ratio of less than 13 percent, compared to the East African average of 16.5 percent.

This position has prompted the International Monetary Fund and the World Bank to exert pressure on Uganda to ensure that it increases domestic revenue mobilization.

Last year, Uganda started implementing the Domestic Revenue Mobilisation Strategy 2019/20-2023/24, aimed at improving the ratio to at between 16 and 18% by the end of the five-year strategy.

However, both the URA and the ministry have admitted this will not be met due to the slow growth of collections, amid disruptions in the economy by the Covid-19 pandemic.

Commenting on the strategy, former Secretary to the Treasury, Keith Muhakanizi said the country had to increase the number of people paying taxes instead of continuously burdening the few taxpayers.

“Today, a small group of Ugandans find themselves bearing a tax burden that should be shared with others,” Muhakanizi said. “Many more who benefit from the development of our economy, of our society, of our personal freedoms and chances in life, need to play their part and make a contribution as taxpayers so that we can all share in a better future.”

The URA Commissioner General, John Musinguzi Rujoki says they realise the need to ensure an increase in the number of people paying taxes.

He says there are studies made that have shown that there is room for Uganda to expand its tax base and raise more revenue, and in turn raise the tax-to-GDP ratio.

“Our aspiration and motivation going forward, is to rally all citizens to join this journey of mobilising enough revenue for comprehensive national development for this and future generations,” says Musinguzi. “To this end, URA has instituted mechanisms to identify and facilitate eligible citizens and economic players to contribute to the revenue basket, but also close any revenue leakages.”

These initiatives are provided for within the 5-year strategy and they include use of technology to ease revenue payment and tracking, enhancing tax education campaigns, partnering local and foreign stakeholders to net more taxpayers like multinationals and online business operators.

Currently, there are only 1,783,500 taxpayers, according to the URA taxpayers register as of mid-September 2021.

It is estimated that at least 18 million Ugandans are in gainful employment, meaning less than 10 percent of taxable Uganda are paying the taxes.

This means that less than 2 million Ugandans are paying taxes that should cater for the needs of 45 million people.

An employee in a formal arrangement, who earns 1 million shillings per month, will have their salary deducted by some 300,000 Shillings per month, that is 250,000 PAYE and 50,000 for NSSF.

These deductions are made at the stage of depositing one’s salary at the bank, where different processes regarding the salary account are made. Richard Yego, the Agent Banking Company of Uganda chief executive officer, says there is a percentage excise duty levied across all channels of withdrawing through the bank.

Should the employee withdraw the cash and deposit it on mobile money account, it will require another 0.5 percent tax to withdraw the money for use on other necessities.

Using mobile money, and other activities requiring a mobile phone, means the person will still have to pay another 12 percent tax on the airtime/data that he or she has to use to operate the phone, not only to facilitate official work, but also to pay for utilities.

To pay for and access the utilities including electricity and water, it will require the taxpayer to pay an excise duty and VAT, the latter being fixed at 18% of the value of the transaction.

Recently, the Ministry of Finance announced plans of another controversial tax; taxing withdrawal of money from the bank. Consultations are ongoing following initial disapprove by the Uganda Bankers Association.

While the ministry and URA have to look for ways of expanding the tax base, they have to research into ways that will ensure less resentment to tax payment by Ugandans.

URA says it is tackling this through tax education and accountability, a campaign dubbed ‘My Taxes Work’ which highlights the areas or programs that have been funded by the taxes.

The other is creating space for the largely informal sector and encouraging the businesses to pay due taxes.

Most of the Ugandans are employed in informal businesses, which make more than 80 percent of the total employers or enterprises, according to the Uganda Bureau of Statistics, UBOS.

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