The largest portion of money that will fund the 2015/2016 Budget will come from domestic resources.
With a raft of tax measures by Uganda Revenue Authority (URA) Ugandans— from both the formal and informal sector— are expected to raise at least Shs11.2 trillion in form of tax collections to partly finance the 2015/16 Budget.
Who will foot the bill?
Majority of business owners in the informal sector find it easy to dodge the taxman.
The situation is worsened by the tax exemptions that government has been granting some investors since the mid-1990s. As such, the burden falls on the shoulders of the formal sector.
Traditionally, tax collection in the formal sector has always been convenient for URA. Employees who are working for registered business entities, which have their accounts regularly audited, are taxed 30 per cent off their income.
Mr Shaban Serunkuuma, a consumer activist, says that government needs to ensure that all workers are taxed so that the burden on the formal sector is reduced.
“If everyone can pay their income taxes, then the 30 per cent charged on an employee’s earnings may be reduced to 20 per cent because the taxes will be coming in regularly.”
Annet Nagujja, a secretary with an non-government organisation, earns a monthly salary of Shs1,400,000 finds it difficult to save.
“The deductions on my salary are quite high,” she says, adding: “With the little left, I have to pay rent, transport myself to work, and feed my family. It is almost impossible to have any savings in the bank.”
With the National Social Security Fund (NSSF) proposing an increase in contributions, the worker will be doubly burdened.
Currently, employees and the employer contribute 5 per cent and 10 pe rcent, respectively, to NSSF. In the proposed structure, it will be 10 per cent and 20 per cent, respectively.
A higher employer contribution will reflect on the salary of the worker.
Increased cost of living
According to the Uganda National Household Survey 2009/10 carried out by Uganda Bureau of Statistics (Ubos), on average, a household’s monthly expenditure is Shs232,700.
In the large context, a locally funded budget will mean the cost of most items, from luxury goods to necessities, such as accommodation, will increase.
If URA will come down on a property owner to pay his property tax regularly, it is only logical to assume that he will increase the rent of the said property.
The same can be said for consumer goods. If the traders’ taxes and rent increases, he will shift the burden to the consumer.
Formal workers, especially, feel the pinch because by the time they get their income, income tax and NSSF have already been deducted.
“There are more taxes and yet the income is not increasing. This state of affairs negatively impacts consumer welfare,” says Mr Serunkuuma.
Widening the tax base
Efforts are being made to ensure that informal businesses are registered with URA, Uganda Registration Services Bureau (URSB), and Kampala Capital City Authority (KCCA).
“Registering a business is a challenge to some business owners,” says Mr Gideon Badagawa, the executive director of Private Sector Foundation Uganda (PSFU).
“In the past, it has not been easy for business owners to obtain [Tax Identification Numbers] TIN numbers. Although the introduction of E-tax payments has eased the process, few people in the informal sector know how to use the Internet. There is a need to train and sensitise people on how to complete these forms.”
PSFU has a membership of 182 associations. Its goal is to encourage all member associations to register those in their sectors.
“Of course, there is no law that compels one to register their businesses in an association. Instead, there is the freedom of association law, which in my opinion should be revised,” Badagawa says.
Badagawa says that PSFU is trying to engage Ubos to carry out a census on existing businesses.
“This will help us to know who has established a business, where they are, and what kind of business they are engaged in.”
He adds that government should consider reviewing Graduated Tax because every citizen has a responsibility to pay taxes.
The gaps in tax collection
Mr Evaristo Kayondo, the chairman of Kampala Capital City Traders Association (KACITA), says most of the traders in Kampala have been registered.
“It is only traders outside Kampala who have not yet been registered but their local councils are working with KCCA to do that.”
Kayondo, however, insists that only traders with established shops should be registered.
“Market vendors should not be taxed because their capital is small. It is unrealistic to tax someone whose business is worth only Shs300,000. This will cause their businesses to collapse.”
Medi Ssimbwa, a stall owner in St Balikudembe (Owino) Market, agrees with Kacita that they should not be taxed.
“We earn very little but it is just enough to cater for our families. We pay high market dues but if the government is to tax us, then they should close the market because the taxes will be higher than what we earn,” says Ssimbwa.
Ssimbwa sells ‘Jungle boots’ for men and a pair costs Sh 150,000. On a good day, he can sell 12 pairs.
Considering that the vendor buys the shoes from Kenya, at Shs70,000 a pair, he makes Shs840,000 in profits daily.
Ssimbwa also owns a stall in Kisekka Market where his employees sell drinks and snacks.
“After paying the workers, I can get Shs150,000 from that stall.”
But traders like Ssimbwa are on the high end of the scale. There are those who sell vegetables for a living.
Kayondo reasons that many people living in the countryside who have property worth billions are not paying taxes. “One cattle keeper can have 1,000 cows, worth Sh 1million each. This means he is worth Shs1billion.
How many of them have TIN numbers? URA should not make it hard for informal traders to do business. They should instead be left to pay only their market dues.”
Improving tax collection
In the new financial year, 2015/2016, the government intends to use the National Identification Project to link the Business Registration database to URA.
Local Governments and Kampala Capital City Authority trade registrations will also be linked to the database.
Taxes are all about increasing production and creating jobs. The taxpayers need to see that their taxes are actually being put to productive use.
If the tax base is to be widened, then Ugandans need to rise up and demand accountability for their taxes. Government should use the taxes to build infrastructure, create wealth and jobs.