17 May 2018

Uganda: Expand Tax Base, but Not At Growth Expense

editorial

During Tuesday's launch of the report on the State of Uganda's economy, the World Bank's Country Representative, Ms Christina Malmberg Calvo, urged government to expand the tax base in order to sustain economic growth and development.

According to the World Bank, tax collections currently account for only 14 per cent of the country's gross domestic product (GDP), 2 percentage points below the government's target.

The report indicates that up to 80 per cent of the businesses operate informally and transact in cash, which makes it difficult to assess them for tax. That, coupled with tax exemptions and inefficiencies in revenue collection, makes it impossible for the country to collect only about 40 percent of what it should have been collecting.

Ms Calvo's advice is that government should, among other things, make the process of arriving at decisions on who should or should not be exempted from the payment of taxes more transparent and improving public service delivery so that taxpayers start feeling that the taxes they pay are put to good use.

While Ms Calvo was having her say, the chairperson of the Uganda Hotel Owners Association, Ms Susan Muhwezi, was on another end of Kampala complaining that the hotel industry is being weighed down by multiple taxation. She said hoteliers are paying 12 different types of taxes, many of them duplicated, which is stifling growth in the sector.

Traders in Kampala have over the years been complaining about the array of taxes that they pay, including import duty tax, withholding tax and VAT, trading licence or operational permit fees, income tax and property or rental tax. Besides, they still have to pay for utilities and corresponding service charges, parking fees, garbage collection, security and many others. The cocktail is stifling growth in trade too.

Uganda now appears to be looking at the same small pool of people as the source of revenue, which renders the World Bank's advice to government to expand the tax base very timely. However, even as we move in that direction, there is need for us to tread carefully lest we stifle growth in key sectors of the economy.

As it works on that, government should work to stimulate key sectors such as agriculture, which can bring about more jobs and avail Ugandans a chance to earn incomes. Farming communities, especially the small holder farmers, need to access inputs, planting materials and cheap technology and move to buy and stock up surplus agricultural produce during times of plenty and release them during times of uncertainty.

The issue: Tax base expansion

Our view: Government should at the same time stimulate key sectors such as agriculture, which can bring about more jobs and avail Ugandans a chance to earn incomes must be stimulated.

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