At the reading of the 2013/14 Budget in June last year, finance minister Maria Kiwanuka described Uganda financing 81 percent of the budget as historic. Projections then indicated that at least 8.5 trillion of the 13 trillion Uganda Shilling budget would be funded using revenues from Uganda Revenue Authority (URA). A year later and just hours before Minister Kiwanuka presents another budget for the 2014/15 financial year, URA has conceded that there could be a revenue shortfall of close to 500 billion Uganda Shillings.
A year later and just hours before Minister Kiwanuka presents another budget for the 2014/15 financial year, URA has conceded that there could be a revenue shortfall of close to 500 billion Uganda Shillings. After years of a sustained surplus in tax revenue, this shortfall puts into jeopardy the planned expenditure by government. This has been blamed on slow exports, the crisis in South Sudan and low profitability of Ugandan companies.
URA, however, says there were policy measures announced by the finance minister that were either reduced or reversed, but still their revenue collection target remained the same. In the 2013/14 Budget, there were proposals to expand Withholding Tax Agents, eliminate Value Added Tax (VAT) exemption on Hotel Accommodation, reinstating VAT on water, and eliminating the exemption on wheat and flour. The minister also proposed increasing the excise duty on petrol and diesel, a 200 Uganda Shilling tax on Kerosene, increasing the tax on cigarette, taxing mobile money transactions and increasing the motor-vehicle and motor-cycle registration fees. These among other measures would have brought in close to 300 billion Uganda Shillings.
Some of these measures were subsequently reversed by Parliament in July and August 2013. This according to URA led to tax foregone of about 32 billion Uganda Shillings. According to the 2014/15 Budget Framework Paper, URA has been given even a higher target to collect at least 20 percent more than 8.5 trillion set for this financial year. Dr Ezra Munyambonera, a Senior Research Fellow at the Economic Policy and Research Centre, told URN in an interview that tax collection is still traditional, targeting the formal sector, and that there should be options to explore a larger informal sector.
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There have been demands, mostly being proposed by the International Monetary Fund (IMF) for a complete review of tax exemptions to companies. The exemptions are said to be denying the country at least 5 percent of revenue. They are mostly extended to companies involved in agriculture, importing some construction materials and machinery and government imports are also not taxed. Dr Munyambonera says this has to change.
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In a 2014/15 Budget Strategy document read by Minister Kiwanuka in January 2014 and seen by URN, she identifies seven reasons why Uganda’s taxes remain largely stagnated. Among them, she identified tax evasion, inadequate tax administration, and regional initiatives like joining the COMESA and Single Customs Territory and the large subsistence agricultural sector. She also admitted that some tax reforms meet a lot of resistance because they are considered to be “anti-poor”. For instance the refusal by parliament to allow a 200 Uganda Shillings levy on kerosene to be reinstated. She does however, point out that “tax reform cannot be for the faint hearted.”
Government expenditure is not reducing but revenues are also not growing fast enough. If the government is to implement projects and ensure provision of services, revenue collection, according to the IMF is a more sustainable move. None-the-less, the government also has loopholes to plug like leakages, corruption, wastage of funds, reducing exemptions and adding informal traders to the tax system.