Customers shopping in Kampala ahead of Christmas Day. Currently, the country funds only 47 per cent of the national budget and the balance is sourced externally through borrowing whose terms and conditions are not usually favourable. Photo | Eronie Kamukama
Despite being in the midst of lockdown, URA in the first quarter FY 2020/21 (July to September) collected Shs4 trillion against a target of Shs2.9 trillion, resulting into a significant surplus of Shs1 trillion, Ismail Musa Ladu writes.
“Crisis? What crisis?”
This
is the feeling at Uganda Revenue Authority (URA) after registering a
revenue surplus in 2020 when the Covid-19 crisis and containment
measures, have taken a toll on almost all businesses.
Despite the
slowed growth projected in the economy after months of lull economic
activities, URA “magically” managed to register a revenue surplus and
growth.
By November 17, URA had collected Shs973 billion, which
is a proportion of 74 per cent of the official target and 64 per cent of
the operational target.
Before that, net collections for October were above target, with a surplus of Shs147 billion.
In
October, the tax collector collected Shs1.4 trillion against a target
of Shs1.2 trillion, recording over 100 per cent performance, according
to URA records.
This came from the back of another impressive performance recorded in the half year.
In
the financial year 2020/21 (July 2020 to June 2021), URA was expected
to collect Shs19.6 trillion, compared to what was targeted in the
financial year 2019/20—which was Shs20.3 trillion.
Despite being
in the midst of lockdown, URA in the first quarter FY 2020/21 (July to
September) collected Shs4 trillion against a target of Shs2.9 trillion,
resulting into a significant surplus of about Shs1 trillion.
As a
result, a revenue growth of Shs64 billion was registered during the
period July to September 2020 compared to the same period in the
previous financial year July to September 2019.
Allowing factories and construction sites that could accommodate workers to go on during the lockdown enabled URA navigate through the lockdown to collect revenue. Photo | David Lubowa
Leading the pack
According to the URA Commissioner General, Mr John Rujoki Musinguzi, the achievement this year is above the regional peers.
In
a letter he authored recently, Mr Rujoki noted that Uganda’s overall
performance against her target of the first quarter July-Sept this
financial year was at 135 per cent with a growth in revenue of 1.62 per
cent compared to the same period last year.
In comparison, the Burundian Revenue Authority performed at 108 per cent against their target and at a growth of 11.82 per cent. Rwanda performed at 106 per cent at a growth rate of 2.1 percent, Tanzania performed at 88.7 per cent per cent, and a growth of 1.5 per cent while Kenya performed at 88.5 per cent and a declined growth of revenue at -13.7 per cent. Zanzibar performed at 41 per cent of their target and registered a declined growth of revenue at -44.85 per cent.
“Whereas all
revenue administrations faced a steep decline in revenue growth due to
the effects of Covid-19 lockdown, Uganda is the only country whose
growth is steadily and consistently rising out of this slump,” Mr Rujoki
wrote recently.
He attributed the revenue surplus and growth
figures to the government’s efficient management of the Covid-19
pandemic , which he said kept the economy hibernating even during the
months of total lockdown.
“Allowing of the inflow of goods, especially raw materials for factories, allowing the factories and construction sites that could accommodate workers to go on during the lockdown, encouraging food production and agriculture, public sensitisation and observance of the SOPs and a range of other Covid-19 mitigating measures (policy and administrative) helped navigate the nation forward,” he said.
Although international trade taxes
have performed above target with easing of the lockdown and re-opening
of some key economies and supply chains across the globe, URA must have
learnt that reliance on international/customs taxes is no longer the
smart way to go.
Value Added Tax - one of the indirect taxes is
performing well, especially on cement and the sale of spirits. There is a
high demand for cement due to the ongoing infrastructural developments
in the country.
Surplus has also been registered in tax heads such as Pay As You Earn (PAYE), a tax mostly paid by people in formal employment, Withholding tax, deducted from an income, Corporation tax, directly imposed on income or capital and Local Excise Duty charged on imported or selected locally manufactured goods and services, for this case on beer and mobile transactions.
Traders in downtown Kampala in December. Allowing the inflow of goods, especially raw materials for factories during the lockdown allowed the tax collector to get revenue. Photo | Eronie Kamukama
Measures
Going forward,
use of Alternative Dispute Resolution to resolve tax disputes will
continue, considering that out of this effort alone about Sh100 billion
has been reaslised through amicable settlements.
Leveraging
technology and data analytics to enhance revenue collection, compliance,
and identification of potential revenue as well as enhancing support to
taxpayers, according to URA will remain part of their operations.
Lifestyle audits and having a zero-tolerance for corruption will also become a permanent fixture. This will be in addition to ensuring that staff are technically competent in core business areas in tax audit, tax investigation, taxing the digital economy, international tax, and data analytics.
Mr Rujoki is also keen on collaboration and in
information exchange with peers, ensuring system integrations and tax
register enhancement.
With all that, he is optimistic that URA shall maintain this performance, paving way into a self-sufficient Uganda.
Behind regional counterparts
But Uganda still lags behind in tax collection among her regional peers in EAC, COMESA and Sub-Saharan Africa.
For
example, the average tax-to-GDP ratio for Sub-Saharan Africa is 20 per
cent. Kenya’s stands at 18 per cent while Uganda is yet to achieve 15
per cent.
Tax experts, economic analysts and policy specialist, among them, Dr Godfrey Akena of the East African School of Taxation, Dr Fred Muhumuza of the Makerere School of Economics and Research Fellow with the Economic Policy Research Centre, Paul Corti Lakuma, have argued that only a small percentage of Ugandans, particularly those in the formal sector, pay tax.
To President Museveni, several commodities in the country are undertaxed due to weak tax officials and policymakers.
However, the solution lies in widening the tax bracket or else the “bubble” according to experts will soon burst.
As
a result, URA will find itself in the familiar territory—burdening the
same small formal sector as many more in the informal sector, comprising
nearly half of the economy, and not to mention some multinational
companies, including tech corporations, walk away with taxable
earnings.
The government believes Uganda could raise its tax revenue
up to 23 per cent of GDP (total production of goods and services)
annually if tax leakages are reduced with improved efficiency of the
revenue administration systems.
Research indicates that there is
room for Uganda to expand its tax base and raise more domestic revenue
without hurting the economy.
For example, one study shows that
the VAT compliance gap (the difference between potential VAT revenues under
the current legal framework and the actual VAT revenues stands at 60
per cent, which translates into 6 per cent of Uganda’s GDP or nearly
Shs2.5 trillion.
To maintain the performance that URA has
maintained despite the economy taking a hit from the Covid-19 pandemic
and resultant containment measures, the tax prefect has put in place a
five-year domestic revenue mobilisation strategy whose main objective is
to raise the tax-to-GDP ratio (reflection of how much of a country’s
budget is raised domestically) to 16 per cent by 2023.
While recognising the most compliant taxpayers, Mr Rujoki noted that Uganda can not fully fund her national expenditure.
Top sectors
Trader’s tale
Wholesale
and retail, manufacturing, Information and Communication, Finance and
Insurance, and Public Administration remain the five top sectorS out of
the 21 economic sectors.
Meanwhile, the Covid-19 containment
measures are still taking a toll in accommodation, education, and
entertainment sectors, resulting into revenue declines.
Unless lockdown is lifted in these sectors, their revenue contribution will have to be foregone.
iladu@ug.nationmedia.com
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