EOT: THE TAX STRUCTURE IN UGANDA

THE TAX STRUCTURE IN UGANDA

Uganda depends on indirect taxes, over 60% of the tax revenue is from indirect because of generally low income earners to pay and because only a small proportion of the total population and because of the low levels of industrialization

The tax systems tend to be regressive; generally a primary teacher pays the same as a minister

The tax base is narrow because of the low levels of economic activity and low incomes

Double taxation is prevalent e.g. government employees have to pay Pay As You Earn and local services tax from the same income.

The system involves high costs of collection, assessment and general administration because high salaries have to be paid to the Uganda revenue authority officials in the pretext of preventing corruption.

The system experiences high incidence of tax evasion and tax voidance.

There is low taxable capacity of the government and the nation because of low incomes and low benefits derived from taxation.

The assessment tends to be up hazard because of lack of information and his sometimes leads to loss of revenue. There is general lack tax education so that the majority of the population does not know why and how to pay taxes and this complicates the system of tax collection and assessment.

The system experiences high levels of tax exceptions because of tax holidays because of political reasons and interference leading to low levels of revenue realized.

PROBLEMS FACED BY TAX AUTHORITIES

It is hard to establish taxable incomes of individuals and business units.

The high incidences of tax evasion and tax avoidance because of the loopholes in the tax laws so the targeted income is usually not realized.

There are heavy exception of foreigners, women and this reduces on the tax base.

The poor transport and communication system limits the mobility of tax officials in tax assessment and collection.

Tax officials are generally inefficient and corrupt e.g. they do under assessment for some business men in exchange for bribes.

There are high levels of smuggling and this limit the tax yields from import duties.

Poor political will the government fears to impose taxes in order not to lose popularity e.g. the scrapping of graduated tax.

There are problems of insecurity where tax officials will not go to certain areas and people in politically unstable areas are sometimes given tax holidays.

Limited supply of skilled, trained and competent personnel to do tax assessment, collection and mange tax administration.

Low taxable capacity of individuals because of the high levels of unemployment, low levels of economic activities, large subsistence sector and generally low incomes.

WAYS OF IMPROVING TAX COLLECTION IN UGANDA

Reducing or eliminating corruption

Extensively educating the masses about the need to pay taxes and on how to calculate the various taxes.

Increasing tax rates on some of the existing taxes like corporate tax, rental tax e.t.c.

Developing a tax payer friendly system of collection like giving gifts to tax payers who comply and pay up their taxes accurately and in time.

Improving upon and building up modern infrastructure to improve on the mobility of tax officials and increase in the levels of economic activities.

Adopting the principle of equity and fair assessment to reduce on tax evasions.

Training personnel to gain adequate skills so that they are competent in assessing, collecting and administering taxes.

Ensuring political stability in all areas of the country to widen the tax base and taxable capacity

Developing a comprehensive tax payer data base through the system of giving tax identification numbers to all tax payers.

Ensuring proper and effective use of taxes like on improved welfare so that people are more amenable to paying taxes so that the level of avoidance and evasion are reduced.

Reviewing existing tax laws to make them more effective

Taking tax disciplinary measures of tax evaders e.g. making the evaders pay taxes of the previous years.

Diversification of tax resources by introducing new taxes like on casinos and airtime.

Looking into possibilities of decentralizing tax collection of the local authorities in order to increase efficiency.

Availing adequate operation facilities like computers to foster compiling up to date data.

REASONS FOR LOW TAXABLE CAPACITY IN UGANDA

Low benefits derived by the population from taxation discourage the paying of taxes.

Unequal distribution of income where the majority is poor and fall out of the taxable income basket.

Some goods are unpopular and this makes the population unwilling to pay taxes.

Poor attitudes of the people towards paying taxes

Narrow or limited range of tax bases, there are usually very few items on which taxes can be levied leading to low taxable capacity.

General political instability limits economic activities and leads to exemption of individuals in certain areas hence low taxable capacity

Poor population structure, the population is dominated by the young and the women, this leads to few individuals who are liable for taxation therefore low taxable capacity

Low level of real wealth, there are few individuals who own real estate, large chunks of land which would be catchment area and tax bases hence the taxable capacity remains low

Bad tax assessors and collectors, tax officials are sometimes unskilled, untrained and corrupt leading to low taxable capacity

Political issues like desire to maintain political popularity and selfishness of politicians leads to low taxable capacity.

REASONS FOR LOW TAX REVENUE AND LOW TAX BASE IN UGANDA (LDCS)

High population growth rates lower the taxable incomes leading to low tax revenues.

High levels of unemployment makes many people fall out of the taxable bracket.

Large scale tax evasion and avoidance leads to low tax revenue.

Small industrial sector with few big companies from whom a lot of revenue would be realized in form of corporate tax.

Wide spread poverty and existence of income inequalities leaves few people who can be taxed.

Narrow definition of lawful activities. This limits the activities which can be taxed to yield high incomes or high revenue some activities like local brewing, prostitution, sell of narcotic drugs are regarded as illegal and are not taxed yet they yield a lot of revenue.

Economic mis-management leads to low levels of production in major sectors and this makes the tax base narrow.

Insecurity and wars in many areas makes tax assessment hazardous and makes large numbers of people fall out of the taxable bracket.

Need by the government to attract investors leads to large scale giving of tax holidays and tax exemptions leading to low revenue to attract investor.

Fear of retaliation by trading partners and formation of economic integration leads to the levying of low rates of imports duties which do not yield a lot of income.

Need for government to rally political support leads to low rates of taxation and phasing out of certain taxes leading to low tax revenue.

Corrupt officials sometimes under assess certain individuals on ‘’understanding’’.

The wealth tend to have a lot of political influence which makes it possible for them to evade payment of taxes and makes it hard for government to put certain taxes in place.

Many people are self employed in the informal sectors and agriculture and they do not declare all their sources of incomes. This makes it hard to determine their taxable capacity leading to low taxes realized.

Need for structural adjustment leads to phasing out of some taxes like export tax in order to encourage production for export in order to increase foreign exchange earnings.

Loop holes in tax makes tax avoidance easy and leads to low tax revenue being collected from taxation.

 NEED FOR TAX REFORMS IN UGANDA

To widen the tax base

To enhance fairness in the tax system

To raise efficiency in taxation

To achieve certain desirable social economic goals like controlling inflation, correcting the balance of payment problems and others.

To touch the wealth of all land owners.

To achieve equitability by putting there a multiplicity of taxes so that the rich pay variety of taxes which reduces the income gap between them and the poor.

To minimize dependence on foreign sources of revenue putting in place many taxes and increasing efficiency in the tax system would lead to increase in tax revenue reducing on the need for foreign aid.

To enable the government get additional revenue to compensate for loss of revenue through tax evasion and avoidance.

To balance the effects of taxation on individuals on savings and consumption in various sectors.

TAX REFORMS WHICH HAVE BEEN MADE IN UGANDA SINCE 1987

Creation of an autonomous body responsible for tax assessment, collection and administration that is the Uganda revenue authority created in 1991 by act of parliament to streamline tax administration and increase efficiency in tax collection.

There has been harmonization of tax rates on imports to have 3 major strands of rates i.e. those which are levied at 7%, 15% and those which are not taxed.

Export taxes were abolished in 1998 to foster export promotion drive.

There has been creation of technical support department to supplement the work of URA e.g. an internal audit management services department and finance and administration departments in the bank of Uganda to help the Uganda revenue authority.

There has been abolition of ministerial discretions to grant tax exemptions.

There has been introduction of V.A.T with 3 major regimes, zero rated and uniform/ standard at 18%.

There has been creation of the special revenue protection services (manned by army men to curb smuggling especially across Lake Victoria).

There has been improvement in the collection of data by introduction of tax identification number system to enable URA to keep track of the information regarding tax payers.

Introduction of large tax payers department where the top 100 tax payers are allowed to do self assessment of there VAT and pay directly to the bank without having to pay for URA assessment.