The Independent Uganda: You get the Truth we Pay the Price
Some traders lack the digital skills to navigate the new system
Kampala, Uganda | THE INDEPENDENT | Kampala’s Kikuubo trading hub was markedly quiet most of last week, a significant deviation from its usual bustling activity. The once vibrant shops, known for their colourful fabrics, utensils and scholastics were closed, with owners absent and signs of protest evident.
Some shopfronts bore signs explaining their closure creating a tense atmosphere starkly contrasting with the area’s typical vibrancy.
This commercial artery of the city experienced a palpable standstill as many small and medium-sized business owners shuttered their doors in response to the newly implemented tax regulations under the Electronic Fiscal Receipting and Invoicing Solution (EFRIS).
Launched in 2021, EFRIS requires the use of Electronic Fiscal Devices (EFDs), e-invoicing, or direct communication with business transaction systems, designed to streamline tax collection and enhance transaction transparency directly to Uganda Revenue Authority (URA).
The system, initially targeted at manufacturers and later expanded to include supermarkets and larger businesses, was engineered to curb tax evasion by improving the accuracy of recorded transactions and ensuring the matching of input and output tax, thus enhancing the country’s tax-to-GDP ratio.
However, The Independent’s investigation reveals deeper grievances fueling the protests beyond the initial discontent with EFRIS.
Besides a deficit in digital skills necessary for operating the EFRIS system, many traders are not fully aware of the system’s significance, the specific businesses required to enrol, the variety of taxes due, and the potential opportunities that lie ahead.
Furthermore, a section of traders have been underreporting taxes, and with EFRIS, a true picture of their expenses has come to the fore threatening their business operations and profitability.
Trader’s concerns
However, a section of traders have expressed concerns over URA’s set threshold of an annual turnover of Shs 150 million for EFRIS enrollment, advocating for an increase to at least Shs 1 billion.
They argue that the current 18% VAT rate, imposed on each trader as the goods move to the next trader or business, amounts to double taxation and this limits their competitiveness in the region especially Kenya, whose VAT is at 16%.
Additional grievances include the elevated import duty rates on textiles and garments whose import duty stands at 3.0 and 3.5 USD per kilogram, respectively, which they claim not only increase the cost of doing business but also encourage smuggling and result in numerous uncleared containers at URA facilities. Traders are pushing for a reduction of these duties back to 25%.
Amidst these economic pressures, local traders are also challenging what they see as non-standardized URA valuation guidelines for imported and exported goods, which they argue hinder effective business planning and place them at a disadvantage compared to their regional counterparts.
Further compounding the issue is the alleged unprofessional conduct of the taxman’s enforcement officers and the high interest rates imposed on local businesses – ranging from 17-36% – contrasting sharply with the more favourable conditions afforded to foreign competitors, particularly Chinese firms, who benefit from lower credit rates and additional business incentives.
Thadeus Musoke Nagenda, Chairman of the Kampala City Traders Association and a local business owner, highlighted the practical and financial burdens imposed by EFRIS on small businesses. He criticized the URA’s enforcement tactics and the steep penalties for non-compliance, which he claimed hinder widespread adoption of the system.
“URA’s current brutal enforcement, as well as the high penalties of Shs6million per receipt (for failure to use the system), has greatly discouraged the adoption of the technology,” he said.
He said traders are ready to engage in discussions with President Yoweri Museveni to address these concerns and seek a resolution. The initial meeting that was scheduled for April 12 was called off last minute.
Taxman’s response
Appearing on Capital FM’s Capital Gang on April 13, John Musinguzi Rujoki, the URA Commissioner General, defended the new EFRIS, stating that it is intended to broaden the tax base, reduce sales suppression, and enhance Uganda’s tax-to-GDP ratio, which currently stands at approximately 14%.
“The initiative is designed not only to increase our tax collections but to also alleviate the tax burden on compliant taxpayers, thus fostering equal contributions towards national economic growth and development,” Musinguzi said.
He further highlighted the disparities in tax burdens among countries, noting that Uganda’s tax burden is significantly lower than that of several European nations.
“Currently, the tax burden in Uganda is about 11.8%, compared to Kenya at 17%, and significantly lower than the Netherlands at 49%, Denmark at 47%, and Italy at 42%,” he said.
Musinguzi said URA has recorded success in expanding the tax base from 1.7 million to around 4.2 million taxpayers over the past four years.
He reiterated that EFRIS, already implemented in neighbouring countries like Kenya, Tanzania, and Ethiopia, is crucial for increasing tax revenues.
Addressing the concerns regarding the Value Added Tax (VAT), the Commissioner General clarified, “VAT is an indirect tax ultimately borne by the consumer, and to date, there have been no consumer complaints about high product prices due to this tax.”
He also pointed out that VAT currently accounts for about 15% of the country’s overall revenues, which is very low compared to other countries. This trend, he said, needs to be reversed.
In terms of enforcement, Musinguzi revealed that around 500 security personnel, including 250 from the Uganda Peoples Defense Forces and 250 from the Uganda Police Force, not only assist in tax enforcement efforts but also ensure the safety of URA staff.
He also announced plans to establish a URA office within the Kampala Central Business District to facilitate better communication and provide necessary information to traders to ensure that the new initiative is embraced smoothly.
URA’s new revenue target
Speaker of Parliament, Anita Among has since directed the Ministry of Trade, and that of Finance, to resolve the woes of Kampala City Traders and report back to Parliament on April 16, 2024.
“This (strike) is not only happening in Kampala, this must be interrogated and we must come to a solution. The Committee of Trade and Finance must do a public hearing with these traders-URA must come out, there should be certainty in collection of these taxes collection,” Among said on April 09,while chairing a plenary session after the matter was raised by Kampala Central Division Member of Parliament, Hon. Muhammad Nsereko.
URA is expected to collect taxes worth Shs31.574 trillion to finance the 2024/25 national budget, which is an increase of Shs1.9trillion from the current target of Shs29.672 trillion, the Authority is expected to collect in FY 2023/24.
Henry Musasizi, the minister of State for Finance told Parliament on April.04 that to achieve this projected target, URA will continue to undertake various reforms including roll-out and enforcement of electronic receipting and invoicing solutions.
“The objective of this reform is to ensure that taxpayers can keep clear records, file returns promptly and they can efficiently assess their VAT. I call upon every Ugandan to support this cause,” Musasizi said.
The government is proposing to raise spending by 10% to Shs 58.3 trillion in the upcoming FY 2024/25 amidst concerns of budget cuts including Parliament.
