Kampala, Uganda — The Commissioner General for Uganda Revenue Authority, John Rujoki Musinguzi, has an uphill task of collecting taxes from businesses and individuals that continue to face the COVID-19 pandemic hit.
His supervisors at the Ministry of Finance have set targets for him and appears not to bother much about the environment under which he operates.
In the just concluded FY 2020/21, Musinguzi and his technical staff only managed to collect net revenue of Shs19.2tn, a 14.99% growth in comparison to the previous year. However, this is below the Shs21.6trillion target.
The tax body has in the recent years attributed the revenue shortfalls to a bad economy and lately, the COVID-19 lockdown measures.
It closed the 2019/20FY with a shortfall of Shs3.6 trillion; then in the FY2018/19, the shortfall was nearly Shs700 billion. In FY2017/18, the deficit was Shs659billion and in FY16/17 it was Shs377 billion.
However, the top URA executives that spoke to The Independent described the performance for the just concluded FY as 'very good' given that they managed to withstand the tough economic [Covid-19] environment during the period.
The tax body posted an estimated tax to GDP ratio of 12.99 percent, representing a 1% growth. In real terms, this reflects a growth in revenue of Shs2.5tn.
"This is the highest growth registered in the last four years," Musinguzi said at the end of year press conference held at the tax body headquarters in Kampala on July 15.
"It is important to note that this was the target approved by Parliament before the impact of Covid-19 set in and macroeconomic variables that affect revenue such as GDP growth were projected at 6% yet by the end of the financial year GDP growth was at 3%."
The domestic revenue collections in the FY2020/21 stood at Shs12.14tn, registering a growth of 13.71% (Shs1.4tn in real terms) in comparison to the FY2019/20. However, the collections were below the target of approx. Shs14tn by Shs1.8tn.
Custom revenue collections stood at Shs7.5tn against a target of Shs8tn, registering a significant growth of 16.43% (Shs1.1tn) in comparison to FY2019/20. However, the collections were Shs495bn below the target.
During the same period under review, 71% of the revenue was generated from the top four sectors; Wholesale and retail trade sector which had the biggest contribution, amounting to Shs5.7tn (29.43%); manufacturing sector with Shs4.4tn (22.70%); information and communication sector Shs2.1tn (10.48%), and the financial and insurance services sector contributing Shs1.6tn (8.39%).
There was also growth in revenue from key sectors like manufacturing that recorded a 27.52% growth, information and communication 25.73%, wholesale and retail 19.13% and financial and insurance services by 5.55%.
However, revenue collections from accommodation and food service activities declined by 37.38%, education sector by 10.35%, arts entertainment and recreation by 31.39% citing slowdown in business in the wake of COVID-19 pandemic lockdown.
Revenue collection in EAC bloc
URA had the highest year on year in revenue growth (14.99%) in the East African Community. Tanzania's collection in FY 2020/21 was 0.1% less compared with the previous year.
However, Kenya, Burundi and Rwanda Revenue Authorities met their targets in the FY2020/21 set in consideration of the Covid-19 lockdown measures.
Behind 15% revenue growth
URA's growth in revenue collections is pegged on the debt recovery of Shs1tn mainly attributed to alternative dispute resolution which contributed slightly over Shs365bn, the voluntary disclosure initiative, close monitoring of memorandum of understanding for installment payment, and enforcement mechanisms among others.
The implementation of the Digital Tracking Solutions and the Electronic Fiscal Receipting Solution too boosted performance, the executives said.
DTS contributed to the 16.89 percentage growth in excise duty collections by aiding the enforcement and tracking of locally manufactured and imported goods.
On the other hand, EFRIS contributed to the 14.73 percentage growth in VAT collections, through relaying real-time taxpayer transaction details to URA, thereby minimizing underreporting of VAT collected from consumers. However, both technologies are still being rolled out and not yet fully enforced.
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Further on the tax administration front, Musinguzi said, the growth in revenue is attributed to the quick response by revamping the online services to taxpayers such as different payment modes, online taxpayer education campaigns ( KAKASA), improved contact center (IVR ), toll free lines, faster clearance of refunds, introduction of a bonded warehouse information management system, simplification of the TIN application process, automation of the withholding tax exemption and tax clearance certificate issuance.
Customs revenue collections grew by 16.43% mainly due to a growth in imports by 37.38% in the FY2020/21 compared to FY 2019/20. Only about 23% of total imports are dutiable.
The new tax administration measures announced through the budget speech of FY2020/21 that included EFRIS, DTS, scanners, debt recovery, use of GPS and data analysis among others yielded revenue of Shs1.1tn against a target of Shs548bn, performing at 202.74%.
The new tax policy measures implemented in the FY 2020/21 yielded net revenue of Shs260bn. The measures were majorly under; income tax, local excise duty, VAT, and customs.
PAYE down, new taxpayers join
Pay as you earn (PAYE) tax was one of the major tax heads affected, leading to shortfall of Shs315bn, mainly due to scale down in number of employees by some organizations. The corporate tax collections were also below target by Shs239bn, owing to losses made in the adversely affected sectors.
Tax administration interventions such as audits, taxpayer compliance visits, debt enforcement were all slowed down and for some months stopped because of the observation of COVID-19 standard operating procedures.
Meanwhile, during the FY2020/21, a total of 189,377 new taxpayers were added to the taxpayer register leading to the growth of the taxpayer register to 1,783,493 taxpayers.
In addition, process improvements were undertaken like the Tax Identification Number (TIN) registration which has been simplified, from excel templates into a simple single web form to facilitate taxpayer registration. This has further been linked with the NIRA database to make it easier to register for tax once one has a NIN.
Customs facilitation and enforcements
The tax body has initiated the second phase of the Customs Business Systems Enhancement with the aim of harmonizing customs procedures and systems to improve cross border trade, collaboration between government agencies, clearance time and reduce the cost of doing business.
Implementation of the Uganda Electronic Single Window with a single transaction portal was developed and rolled out/deployed, enabling traders to submit documents and or information to all border regulatory agencies once and hence saving on time and related costs.
Musinguzi said with the outbreak of COVID-19 in 2020, URA improved the Regional Electronic Cargo Tracking System by enabling it with the driver tracking module. The tax body is able to monitor 72 percent of the goods processed from the port of Mombasa and also support driver tracking and their contacts.
During the year, the enforcements led to a recovery of Shs67bn as a consequence of 5,823 seizures. The 4,843 seizures were issued on dutiable goods and 980 seizures were issued on non-dutiable goods.
The major offences were due to under-declaration at 59.39 percent, mis-declaration at 18.38 percent. Other offences were related to temporary road violations and transit violations.
In terms of litigation, the tax body's legal department said, more than 259 cases were filed, of which 231 were civil and 28 criminal cases. However, 65 cases were ruled in favor of URA and 20 in favor of the taxpayers.
What lies ahead?
Parliament has tasked URA to collect Shs22.4tn this financial year, representing a significant increase compared to the previous year.
Musinguzi is optimistic about future collections amidst the coronavirus pandemic.
"URA's new transformation journey sets the premise for which this great institution shall endeavor to boost her revenue mobilization efforts in a strive to free our country from donor dependency, encourage a healthy flow of investment, and address fairness and transparency in the tax administration system," he said.
He said his plan is to continue implementing key programmes including taxpayer education and services, stakeholder engagements, improving corporate governance, leveraging use of data and technology, retooling and hiring new staff in order to meet the expectations of his appointing authority.
Experts' suggestion on dealing with COVID-19 pandemic
Moses Wasswa, Tax Manager at Ernst & Young Certified Public Accountants of Uganda
Donations to Covid-19 National task Force should be allowed as a deduction over the next few years (say, within a span of three years) instead of just FY 2020-2021.
Suspension of tax debt recovery during Financial Year 2020/ 21. Tax administration may want to consider suspension of debt recovery, including suspension of the garnishing of bank accounts through URA's use of agency notices, asset seizures and sales.
Value Added Tax (VAT) credits carry forward threshold could be increased from the current Shs 5 million to Shs 50 million.
The taxpayers can file tax returns within due date and there will be an option of paying the self-assessment tax after six months of filing the return.
The application of rates of interest on delayed payment of advance or unpaid taxes could be lowered say to 0.5 per cent per month from the existing 2 per cent or suspend interest on late payments.
As a one-off measure, the option of providing reduced corporate tax rates to companies may be explored.
Short-term capital loss made by retail investors due recent stock market slump should be allowed to be set off from employment taxable income.