Uganda’s tax system unfair to SME’s

Hakim Lugemwa is the CEO of Uganda Entrepreneurs Business Foundation. He spoke to The Independent’s Agnes E Nantaba about the challenges and opportunities of entrepreneurship in Uganda.

What are the key elements in your management style as a CEO?

My management style is not driven towards owning the foundation but selling it to everyone that is part of it. Fellow work mates are at the same level only that as a manager there are some things that may look different. I am one manager who prefers to keep a low profile because I believe that I am not any different from others. We are almost at the same footing and this has enabled us to move along together while supporting each other. As a manager I don’t sit alone to make goals and in fact the mission and vision was established through collective efforts of all the team members. We decide on what to do and how to achieve it. My job is therefore to push the executors because at the end of the day we are all creative minds. I also love collective responsibility. I prefer to be called a team leader because I believe that everyone is qualified.

What is your assessment of entrepreneurship and social enterprise in Uganda’s economy?

Ugandans are naturally hardworking people who love to start businesses. However amongst the many businesses, only a few manage to go the whole distance of celebrating their first birthday. The challenge mainly lies with support systems from leaders and families.

Ugandan entrepreneurs also lack persistence and perseverance which is the back bone of entrepreneurship. Other entrepreneurs lack the required managerial skills but there is some progress despite having factors like high taxation taking us back.

Most entrepreneurs view lack of capital as the biggest huddle to not getting started in business. What is your take on this?

It is very wrong to cite capital as the biggest hindrance to business startup. It is in fact a fallacy unless if someone doesn’t know where to get capital. There are various sources of capital in Uganda today for instance government programmes especially among the youth and women. Our people just need to get out of the comfort zone and look for the money.

The only challenge is that some people may get the money at a high interest rates, and in this case I wouldn’t encourage a startup to get money from commercial banks or money lenders. I would rather encourage young people to look into family and other friendlier sources as the primary sources of finance. There are opportunities for startup capital in Private Sector Foundation Uganda of up to Shs 17 million and yet it is not the only source.

Reports indicate that most entrepreneurship ventures in Uganda remain small-scale and informal for decades. What explains this trend?

The major reason that many business people front for not wanting to take the formal path has to do with taxes. When a business is registered, it automatically gets onto the grid of Uganda Revenue Authority or the local council tax system and in some cases it is both.

Our tax system is unfair especially to SME’s because they are taxed highly compared to the returns. Many business people cannot negotiate with the authorities and this explains why many are reluctant to register. While there are several advantages of running a formal business, the one disadvantage might outweigh the benefits.

In 2015, Uganda was ranked the best entrepreneurial country in the world with an entrepreneurship rate of 28 5%. What are the key drivers to Ugandan entrepreneurship?

The report mentioned that Ugandans are very good at starting so many businesses but also gives the side of it that many of these businesses fail. This is largely due to lack of support systems.

The government put in place several financing mechanisms such as the Youth Venture Capital Fund (UYVCF) and Youth Livelihood Programme (YLP) to boost entrepreneurship but these have not achieved much success. How best can these mechanisms be utilized to achieve greater impact?

The greatest evil that is eating up such mechanisms is corruption. Many young people who have successfully acquired the funds claim that while acquisition may be Shs 8 million, you may end up receiving only Shs 5 million. The challenge comes up when paying back, and so in most cases it is bound to fail.

In such a case, training is a key solution to skill people because there are many people with good plans but these fail at execution so if such people are trained, the results can be much better.

Where do you see entrepreneurship in Uganda in the next few years?

Entrepreneurship is destined to contribute greatly to solving Uganda’s unemployment challenge. However, it is a decision and a journey for the bold and patient. An entrepreneurial country is better for everyone because it relates so much to drivers of the economy.

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editor@independent.co.ug