18 September 2003

Uganda: Graduated Tax Brings in Billions


Kampala — I recently appeared on a 93.3 Monitor FM radio talk-show with Mr Aggrey Awori, the MP for Samia Bugwe North. The discussion was on whether graduated tax should be abolished. Awori was for abolition of the tax.

I have heard some other people advocating the abolition of graduated tax. However, what annoys me most are the illogical arguments such people advance.

First, they say that the cost of administering this tax is too high and they further claim that it costs more to collect it than what is collected.

The other argument advanced against graduated tax is that it's aimed at the poor. Those calling for its abolition thus want to appear as liberators of the poor people.

The main problem is that those calling for the abolition merely speculate as they fail to strengthen their arguments with facts and figures. During the talk-show, I asked Awori whether he knew how much money was being collected from graduated tax each year.

He didn't have an answer, but he insisted that as a politician, it was his duty to educate the people. Fine, but one becomes a better educator after carrying out research.

Figures from the ministry of Local Government indicate that the highest collection of graduated tax was Shs 67 billion in the financial year 1997/98.

This is not a small figure by any standards. With that potential, should we abolish this tax or not? Shs 67 billion is about $33.5 million.

Recently, I read in the papers that the Irish government was under pressure from its parliament to stop their budget support of about $30 million a year to the Uganda Government.

Luckily, the Irish will now continue with their support. I quote this example because while Uganda is getting $30 million from the Irish government annually, some people want us to abolish graduated tax which in 1997/8 raked in about $33.5 million - a figure that is obviously higher than what the Irish give us each year.

Why should the Irish give us budget support from their taxpayers' money when our own Aworis are advocating the abolition of a tax that can bring in that much?

The Bible says that God helps those who help themselves. Surely, if we abolish graduated tax and continue begging for donor support, we will not be helping ourselves and God may condemn us.

Some of the advocates of the abolition of graduated tax say that it should be replaced by an indirect tax; a tax on consumption where one pays wherever a commodity or service is bought.

I have no problem with this approach. But what are we solving if we replace graduated tax with another tax?

Are we abolishing this tax to help the poor? How will the poor benefit from the abolition of graduated tax if at the same time we introduce another tax?

Unless the poor live in a purely subsistence economy, with no taxes on consumption, they will still be affected by the introduction of more indirect taxes.

In fact, for as long as the poor people pay for goods and services, they will suffer the tax burden of any new indirect tax that will replace graduated tax.

The other argument raised by the abolitionists is that the cost of collecting graduated tax is high. They even claim that it costs more to collect it than what it brings in.

I want to be educated by those pushing this argument that in 1997/98, the cost of administering graduated tax was more than the Shs 67 billion that was collected.

In the villages, chiefs with the help of LCs, collect this tax. The chiefs' salaries are always guaranteed, so there are no extra funds they get to collect graduated tax. It cannot, therefore, be argued that collecting this tax costs more than what is collected.

In any case, the chiefs will always be there. Even if you abolish the tax, the cost of maintaining chiefs will remain. So there will be no saving in terms of not spending the money, which the districts spend on collecting graduated tax.

For the civil servants who contribute a lot to graduated tax, the cost of collecting from them is so minimal, as the Ministry of Public Service collects the tax from the source.

I have never gone to Kampala City Council to pay my graduated tax but each year, KCC sends me a graduated tax ticket because my employer pays to KCC directly. So no civil servant defaults on graduated tax as some people say.

There is an argument that this tax is for the poor, as the highly paid government officials don't pay. This is incorrect. What the government does by collecting at the source should be done for all people employed in the formal sector to improve on collection and have a proper assessment because the Ministry of Public Service knows how much I earn.

Some people tell lies about their incomes and pay less. For government employees, this is not possible.

The argument that some people are chased around to have them pay this tax doesn't hold water. It's true that some people are forced to pay. But the question of tax evasion is not only confined to graduated tax.

Some people evade indirect taxes as well. Otherwise we would not have a special revenue police.

Can one say that tax collection should be abolished because some people evade taxes and the revenue police follow them? Is there a country in the world that has no tax defaulters and revenue police?

The other argument the abolitionists put across is that the rich and the senior civil servants and politicians pay less compared to their incomes.

They give as an example that a primary school teacher pays Shs 80,000 in graduated tax per year while a permanent secretary who earns much more pays the maximum of Shs 100,000.

I don't buy this argument because the highly paid civil servants and politicians pay income tax in addition to graduated tax. So while a teacher pays Shs 80,000, a permanent secretary pays Shs 100,000 as graduated tax in addition to income tax.

The author is President Museveni's private secretary for political affairs. (political@infocom.co.ug)

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