With four
months to close the 2019/2020 revenue collection calendar, the race to
the finish line has picked up pace. The focus? To avoid a repeat of the
first half of the year performance that closed with a shortfall of
nearly Shs700 billion. This is an equivalent of nine times the budget
allocated to the ministry of trade.
The tax body’s
revenue collections have been rising year-on-year, due to tax
collectors’ drive with Ms Doris Akol, the Commissioner General, steering
the wheel.
To widen the tax base, Uganda Revenue Authority (URA) has implemented several revenue strategies - some of which have been termed as regressive. These have accounted for improved revenue performance from Shs11.2 billion in the financial year 2015/16 to Shs16.6 billion in the financial year 2018/19.
To widen the tax base, Uganda Revenue Authority (URA) has implemented several revenue strategies - some of which have been termed as regressive. These have accounted for improved revenue performance from Shs11.2 billion in the financial year 2015/16 to Shs16.6 billion in the financial year 2018/19.
Despite
the optimism of the tax collector, analysts say URA’s hurdle will
remain stiff as long the agriculture sector continues contributing less
taxes at the expense of those in the formal economy who are within the
taxman radar.
Agricultural sector which contributes
between 20 and 30 per cent of GDP remains under taxed yet it shelters a
large number of informal players who earn taxable income. Agriculture
sector contributes less than 0.3 per cent to tax revenue. This figure is
set to decline further, given massive tax exemptions.
Mr Fred Muhumuza, an Economics lecturer at Makerere University explains that Agriculture, generally, does not get taxed directly, but is a major driver of demand given its dominance as a source of income for many households.
Mr Fred Muhumuza, an Economics lecturer at Makerere University explains that Agriculture, generally, does not get taxed directly, but is a major driver of demand given its dominance as a source of income for many households.
“Without adequate income, we don’t get
enough counsumption of taxable items which undermines tax revenues.
Besides, many agro processing facilities and traders in agro produce pay
personal or business incomes that get affected if production is low,”
Mr Muhumuza says.
However, significant strides have
been registered in domestic revenue through tax reforms such as the Tax
Payers Expansion Project (TREP), digitalisation of tax collection,
enhancing tax compliance and trying hard to expand the country’s tax
base, whose make up consists of nearly half of the informal sector
players. Most of these are outside the tax bracket despite earning
taxable income.
Over the years, URA also rolled out the Travel Assessment System
at Entebbe Airport for checking drug smuggling, wildlife tracking,
terrorism and customs violation to enhane surveillance on suspicious
customs transactions.
“We believe all these are good
initiative towards addressing the leakages in tax revenue collections
which was being lost,” the executive director, CSBAG Mr Julius Mukunda,
said in a sideline interview recently.
He continued:
The above measures have resulted in a year to year growth in revenue.
For example, financial year 2018/19 saw an increased by 24 per cent
leading to approximately 1.4 per cent Tax to GDP ratio the following
financial year.”
Despite the increase in revenue from
Shs10.6 trillion in 2014/15 to Shs27.4 trillion in 2018/19 of which 65
per cent were tax revenues, government spending has not only continued
to outstrip revenue, a situation that escalates the annual budget
deficit, but the tax body has found it difficult to hit its annual
collection targets.
The half year revenue deficits
registered by URA is an equivalent of a budget that can run Uganda
National Bureau of Standards for not less than 10 financial years. It is
five time more than the total budget allocated to the ministry of
trade.
So far, the budget deficit has increased from Shs3.37 trillion in 2014/15 to Shs7.4 trillion in 2018/19, which is nearly half of total tax revenue. To finance the deficit, the government has continued borrowing, resulting into an increase in the public debt.
So far, the budget deficit has increased from Shs3.37 trillion in 2014/15 to Shs7.4 trillion in 2018/19, which is nearly half of total tax revenue. To finance the deficit, the government has continued borrowing, resulting into an increase in the public debt.
Shortfalls
That said, tax experts cast a dim view when asked whether URA will surpass its target, or hit the financial year revenue collection target of Shs18.3 trillion.
That said, tax experts cast a dim view when asked whether URA will surpass its target, or hit the financial year revenue collection target of Shs18.3 trillion.
The tax prefect revenue collection
performance registered during the half year period July to December
2019, was projected to collect slightly more than Shs9.7 trillion.
However,
what was collected was amounted to a net revenue of Shs9.0 trillion,
recording a shortfall of Shs697 billion, an equivalent of nearly nine
times the budget allocated to the ministry of trade.
Revenue
shortfalls over the last four years, with the exception of the previous
financial year (2018/19), have been a permanent fixture on URA’s
financial statement.
Should this be the same story
(shortfall) by close of the financial year in June, just months away,
tax experts and budget analysts predict a glaring implication on the
national budget and financing arrangements which affects service
delivery.
Tight revenue targets
The ministry of Finance (government) despite limited efforts to nurture and grow businesses/entrepreneurship still has the audacity to dictate increased revenue collection targets.
The ministry of Finance (government) despite limited efforts to nurture and grow businesses/entrepreneurship still has the audacity to dictate increased revenue collection targets.
“For example, in
the financial year 2018/19 the collection was Shs16.3 trillion but
government increased the target by 24 per cent, meaning Shs20.3 trillion
will have to be collected in this financial year 2019/2020,” Mr Mukunda
who is also a budget and policy expert, said.
He continued: “These revenue targets that are in most cases not attainable, affect proper planning and budgeting.”
He continued: “These revenue targets that are in most cases not attainable, affect proper planning and budgeting.”
When
contacted last week on Wednesday, the country leader of Ernst
&Young (EY), Mr Muhammed Ssempijja, told Prosper Magazine that
revenue collection targets for the tax man have for a while now been
unrealistic.
Mr Ssempijja notes that many of his
professional peers are uncertain that the tax prefect will hit their
revenue targets coonsidering that the environment is not conducive
enough for them to easily go about their job.
“The targets are so high. It is unlikely that URA will hit its targets; so I don’t expect it to beat their targets, specifically because of the performance of the economy,” Mr Ssempijja said.
He continued: “If the economy is doing well, then there will be more economic activities to collect taxes from. As a result, shortfalls will be minimised.”
“The targets are so high. It is unlikely that URA will hit its targets; so I don’t expect it to beat their targets, specifically because of the performance of the economy,” Mr Ssempijja said.
He continued: “If the economy is doing well, then there will be more economic activities to collect taxes from. As a result, shortfalls will be minimised.”
It appears
the prescription to the lull although resurging economy, according to
Mr Ssempijja lies in the proper usage of allocation of the national
budget to areas he describes as productive segment of the economy,
namely small scale and medium businesses, agriculture and not to mention
deliberate efforts to create conducive environment for businesses and
investment.
On the hand, he cautioned against massive
and exaggerated investment in public administration describing it as a
non-productive sector of the economy because it does not create
wealth—or positively impact the country’s GDP—total value of goods and
services produced in the country quarterly or annually.
Although
infrastructure such as roads are critical, Mr Ssempijja is of the view
that that alone is not enough to spur the kind of economic growth the
country would benefit from, urging the government to invest more in the
aforementioned areas considering their ripple effects in several
economic sectors, including tax mobilsation and collection.
Underperformance
A report by Civil Society Organizations under the Umbrella of CSBAG together with Tax Justice Alliance Uganda highlighted disturbing reasons explaining persistence underperformance over the years.
A report by Civil Society Organizations under the Umbrella of CSBAG together with Tax Justice Alliance Uganda highlighted disturbing reasons explaining persistence underperformance over the years.
The
report issued recently noted that counterproductive tax measures such
as OTT and mobile money which government has failed to let go of, have
not yielded expected results.
According to URA, VAT
attributed to a lower than expected outturn of slightly more than Shs92
billion on phone talk time, Shs38 billion on sugar, Shs28 billion on
beer and Shs41 billion from the wholesale and retail trade.
Ms
Akol attributed this shortfall to many people using internet calls as
opposed to phone talk time. The Value Added Tax (VAT) on phone talk time
was affected by the changes in user tastes where users prefer the use
of data for communication through whatsApp, viber and facebook as
opposed to direct calls using airtime.
The tax prefect
has also been reporting delayed implementation of planned policy and
administrative measures that were targeted to start July 1, 2019 such
as; Digital Tax Stamps (DTS), Electronic Fiscal Devices (EFD) and
gazzetting of withholding VAT agents, rental tax rates and the
implementation of a specialized rental income tax collection solution
which did not take off.
Specifically, digital tax
stamps would stamp out illicit production and fight counterfeiting, real
time tax accounting and reconciliation for tax stamps and real time
enforcement. Overall, the policy measures yielded total revenue gain of
Shs52.4 billion by the end of December 2019 against an annual target of
Shs847 billion.
Regarding “Harmful” tax incentives and
exemptions, the tax body reported that most of the policies and
legislative changes introduced for this financial year were revenue
reducing and erosion on the existing tax base, especially the
corporation income tax base.
Examples include changes
made to Section 21(1) (ae), (af), (ag) of the Income Tax Act introducing
income tax exemptions for selected strategic investments. As a result,
URA anticipates to fore go about Shs500 billion tax revenue in this
financial year.
During July to December 2019, the tax waiver on imported brown husked rice led to revenue foregone of $5.8 million.
Further,
other policy measures that have led to revenues forgone include; steel
billets, cement clinkers, ban on importation of cars above 15 years old
among others.
The unwarranted tax exemptions
negatively impact on domestic revenue mobilisation efforts and affect
budget financing. Government through ministry of finance should be keen
on scrutinizing tax exemptions and tax incentives.
Adopting to the terrain
As the taxation landscape becoming more volatile, URA has designed a strategy to navigate the terrain to harness the tax paying culture.
As the taxation landscape becoming more volatile, URA has designed a strategy to navigate the terrain to harness the tax paying culture.
The
URA Corporate Plan 2020/21 - 2024/25 is premised on the need to develop
an engaged population to enhance the taxpaying culture. This will be
done by engaging taxpayers through “productive partnerships, leveraging
technology, data and innovative staff.”
The strategy shall focus efforts on four strategic themes which will collectively create value.
Further,
URA has also shifted its strategy from a revenue centred institution to
a client centered entity to improve service delivery, implementation of
Digital Tax Stamp and Electronic Fiscal Devices (EFD)/e-invoicing to be
piloted on March 1, 2020.
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