‘Tax revenues grow, but URA won’t hit target’

The Ministry of Finance, Planning, and Economic Development set a target of 25.555 trillion Shillings for URA for the 2022/2023 financial year

Kampala, Uganda | THE INDEPENDENT | Uganda Revenue Authority (URA) forecasts indicate it will register a shortfall of 365.13 billion Shillings this financial year. This is according to projections based on the performance so far.

The Ministry of Finance, Planning, and Economic Development set a target of 25.555 trillion Shillings for URA for the 2022/2023 financial year, but as the situation looks, only 25.185 trillion Shillings are likely to be raised.

This will reflect a collective effort of 13.6 percent of GDP, and an improvement in a ratio of 0.2 percent compared to the previous year, according to the ministry.

This projection is based on the performance of revenue collection by URA thus far.

Collections for the period July 2022 to February 2023, amounted to 16.025 trillion Shillings registering a growth of 14 percent over the same period of last year.

This growth of 1.92 billion Shillings is higher than the 4-year average growth of 10 percent for the same periods.

While some months and areas recorded surpluses, there is an accumulated shortfall of 151.18 billion shillings.

According to URA records, major surpluses were registered under PAYE with 364.46 billion, mainly due to increased recruitment in the private sector, especially in the manufacturing, banking, and oil and gas sectors. This led to an additional 383.58 billion in revenues compared to the previous year.

There was also a slight increase in recruitment in government, on top of salary enhancements for scientists which have reportedly led to an increase in revenues by 123.78 billion.

Rental income tax posted a surplus of 20.44 billion and temporary road licenses registered a surplus of 15.52 billion shillings.

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Others were; import duty with a surplus of 24.67 billion and non-tax revenues which posted a surplus of 177.58 billion shillings.

This good performance was, however, offset by under-performances in areas like excise duty on fuel with a shortfall of 47.13 billion shillings, corporate income tax with 56.05 billion, and withholding tax which fell short by 75.44 billion.

Local value-added tax on phone talk time also registered a shortfall of 36.62 billion shillings.  “There were increased efficiencies in tax administration by URA which generated an additional 649.34 billion during the period,” says Isaac Arinaitwe, a senior economist at the tax department of the ministry.

There are also expected revenue gains of 1.591 trillion shillings on account of an increase in the level of economic activities, and another 1.5 trillion from improved efficiency in tax administration.

The revenues would have been more if the government had not chosen to suspend the introduction of new taxes, according to the ministry.

“It is important to note that in FY 2022/23, Government did not introduce new taxes due to the need to facilitate faster recovery of the economy. This also ensured the stability of the tax system which is critical for the private sector to thrive,” says Arinaitwe in his analysis of the performance.

Therefore, he says, revenue-generating efforts in 2022/23 are largely driven by the enhancement of efficiency in tax administration.

While the target for the first eight months has not been met, the ministry thinks it is nonetheless good.

Arinaitwe attributes the performance in the rental tax revenues to the reform of the tax regime which he says rationalized the tax treatment of individuals with that of companies.

URA and Uganda Police increased enforcement efforts against foreign registered vehicles and this led to a surplus of 15.52 billion shillings.

The ministry also notes that there were factors that affected growth in revenues.

The deficit in VAT on phone talk-time has been attributed to the increased input costs by telecommunication companies, which implies high VAT refund claims by the telecommunication companies.

The general increase in the prices of supplies affected aggregate demand and this accounted for the deficit registered under-withholding taxes.

This was also affected by reduced government payments due to budget cuts of ministries, departments, and agencies.

URA says revenues are to be undermined by exemptions, including incentives for investment promotion, with the loss estimates at 1.56 percent of GDP last financial year.

General poor compliance with tax obligations by taxpayers including the government led to an increase in the stock of arrears stock to 4.632.89 trillion as at end of February 2023.

Of these arrears, Government accounts for 855.93 billion while other taxpayers account for the rest.

A decline in the profitability of firms as a result of low levels of economic activity, as well as delayed government payments, also contributed to lower revenues.

Despite the shortfall, the government is sure there will not be effects on the planned government programs.

Measures put in place include a moratorium on vehicle purchases, saving for critical areas like defense and security, medical delivery vehicles, and ambulances as well as vehicles to enhance revenue collection.

The government has also limited half the budget to workshops and seminars, according to the second budget call circular by Secretary to the Treasury, Ramathan Ggoobi.

Ggoobi also announced the suspension of new borrowing next financial year “and in the short-to-medium term to minimize the share of URA revenues being used to service debt so as to make resources available to finance critical development priorities of the government.”

Spending on travel abroad will be restricted to the President, the Vice President, the Speaker and Deputy Speaker, the Chief Justice, and Deputy Chief Justice, the Prime Minister, and the Principal Judge “and the critical travel for security, arbitration of government cases, and resource mobilization.”

The ministry also suspended salary enhancement for next year.