Even with all the reforms in her tax system, Uganda's revenue-to-GDP ratio remains one of the lowest in Africa, say tax consultants, with Value Added Tax bracket accounting for the biggest number of defaulters.
Unlike other East African states, Uganda's tax revenue-to -GDP is said to have stagnated at 12%-13% for the last decade and currently financing 70% of the budget, which, experts say, is not sustainable. The low performance has been blamed on leakages and lack of proper revenue allocations.
For fair measure, URA has tried to modernise its system to ease tax payments, and there have also been suggestions of lowering VAT although this has not been effected, but the revenue-to-GDP ratio remains below the target levels.
In his paper, "Taxation policies and practices: Does it encourage compliance and equitable service delivery?" presented during a tax justice forum recently, Francis Kamulegeya, the Country Senior Partner, PricewaterhouseCoopers, said as the budget support declines, poor culture of tax compliance by the citizens, a big informal sector, which is outside the tax net, is resulting in widespread tax leakage and revenue loss.
Kamulegeya says the tax revenue-to-GDP ratio of 13% is very low. The challenge is for the government to raise it up from 13% to at least 16%. "Tax should be reflective of the growth of the economy. The system should have some level of predictability, he said"
Kamulegeya noted that that there was need for Uganda to avoid depending on donors, increase accountability, and get the huge informal sector into the tax bracket. "The big jamboree of Independence, Uganda at 50, is over, but so long as we still rely on donors, we won't hit that target," he said.
Tax to-GDP ratio refers to the total government tax collections divided by the country's GDP. When tax revenues grow at a slower rate than the GDP of a country, the tax-to-GDP ratio drops. Tax experts say that many people in Uganda are not paying the right amount of tax due to a number of reasons. Many feel that the tax system is not fair; that the rich have it easy while young upcoming businesses are made to hassle even harder.
Simon Ngabirano, the Uganda Revenue Authority (URA) Supervisor Service Support Domestic taxes department, says they have done a lot for people to understand the tax system and meet their obligations easily. "From the taxman's perspective, we encourage taxpayers to meet all their tax obligations, whereby they should come and get registered, file returns on time and pay the correct taxes. At URA, we are there to assist them in complying with their obligations," he added
Citing the principles of a good tax system, Kamulegeya believes Value Added Tax (VAT) is the most faulted. "The biggest tax leakage in my view, is VAT. Very few people register for VAT," he said.
The task justice retreat was jointly organized by SEATINI Uganda, Oxfam and Task Justice Network Africa with support from the European Union's Democratic Governance and Accountability Programme (DGAP) at the Lake Victoria Serena hotel