PROCEDURES AND CHALLANGES IN TAX COLLECTION

by MOSES KATO
(HOIMA, UGANDA)

Question 1: What steps has Uganda Revenue Authority undertaken to ensure increase in tax collection?

Answer:
For the FY 2012/2013 there have been several efforts that URA has put to increase tax collection below are different tables showing the increases, reinstatement and introduction of different taxes under Income tax, Excise duty and Value Added Tax.

INCOME TAX

Income from Treasury Bills and Bonds
Uganda Tax policy Effect: WHT on TBs and Bonds increased from 15% to 20% and it remains a final tax

Taxation of individual income
Uganda Tax policy Effect:
• PAYE threshold increased from UShs. 130,000 to UShs. 235,000.
• 10% additional tax on individuals with chargeable income above UShs. 120 million


VALUE ADDED TAX

Supply of Water
Uganda Tax policy Effect: VAT of 18% has been re-instated

Supply of biodegradable packaging materials
Uganda Tax policy Effect: VAT of 18% has been re-instated

Gambling and Lottery services
Uganda Tax policy Effect: VAT exemption has been re-instated

Gaming and Pool Betting Tax
Uganda Tax policy Effect: Tax has been increased from 15% to 20%


EXCISE DUTY

Spirits made from locally made raw materials
Uganda Tax policy Effect: Duty has been increased from 45% to 60%.

Cosmetics and Perfumes
Uganda Tax policy Effect: Introduced a 10% tax

Un-denatured spirits
Uganda Tax policy Effect: Introduced a specific rate and an ad valorem rate of UShs. 2,000 per liter or 80% respectively whichever is higher.


Question 2: What challenges does Uganda Revenue Authority face in revenue collection?

Answer:
Businesses are largely informal for instance, of the 130,000 members of Kampala City Traders Association (KACITA) not more than 15% are formally registered and majority are not registered as tax payers. This makes it hard to effectively collect taxes

Many businesses are not registered for tax obligations under Value Added Tax (VAT), although this might sound disadvantageous to them, it makes it easy for them to evade taxes.

Ignorance about rights and obligations: Traders decide to abandon goods over petty cases and URA auctions the goods at give away prices leading to the collapse of businesses and eventual revenue loss to URA.

The porous borders of Uganda especially with countries that experience insurgencies like Democratic Republic of Congo (DRC), Southern Sudan where many restricted products are not taxed. This can be determined by the amount of prohibited goods that are traded.

Low tax base due to low economic activities. Being a largely subsistence based agricultural country; the tax base is low hence leading to increased tax burden. Uganda has not done enough to make use of its comparative advantage in agriculture in spite of having the biggest proportion of arable land in the region.

Bureaucratic systems at URA. Delayed decision making by URA staff for instance some complaints which could have taken days end up taking months to be resolved. This is in spite of the reforms made at URA.

Massive exemptions due to political patronage. This has resulted into taxes being waived for a selected few yet other businesses are going under due to high taxes. No system and criteria is followed in tax exemption.

Deliberate budget proposals aimed at politicking. Some budget proposals are approved on political rather than economic grounds hence hindering revenue collection.

Lack of accountability in public utilities and goods. While this is the best judgment of performance, service delivery in Uganda is still lacking e.g. some roads budgeted for in the previous financial years have not yet been worked upon without any explanation. This makes it hard to convince people to declare incomes and pay taxes since they are not seeing results.

Unprofessional clearing agents and firms. Some clearing agents over charge their clients and make abnormal profits while paying less to URA. In essence both the trader and URA stand to lose.

FDI promotion and opting for tax incentives. This has resulted into gross loss of revenues as massive investments go untaxed.