Monday January 1 2018

Revise local service tax threshold - report

Security personnel on duty in Kampala recently. T

Security personnel on duty in Kampala recently. The Local Mobilisation Revenue report proposes that public servants such as those in security agencies should start paying local service tax. PHOTO BY ABUBAKER LUBOWA 


Kampala- For the local government to raise sufficient taxes, a new report has recommended a raise in threshold of Local Service Tax (LST).

The Local Mobilisation Revenue (LMR) report also proposes that the exemptions from paying of LST by some public servants be suspended.

This means that public servants such as soldiers and other security agencies who are exempted from paying LST, will be required to do so if the recommendation of the report is taken into consideration.

LST is levied on wealth and incomes of all persons in gainful employment, self-employed and practicing professionals, artisans, businesspeople and commercial farmers.

According to the LMR report, presented by the programme officer, financing for development/tax justice, Ms Nelly Busingye Mugisha, at the national level policy and advocacy symposium recently, there is need to help local governments generate revenue to fund service delivery at the grassroots.
“The Local Government Act (Cap 243) does not provide for effective mobilisation of LST. LST has not reached the expected targets. Its contribution has averaged between Shs4.8b and Shs10.5b in FY 2008/9 and 2009/10. This is far below the targeted Shs67b,” she said.

She continued: “The tax base is narrow and the threshold is low. For, example, people in gainful employment getting a monthly salary of between Shs100,000 and Shs200,000 pay only Shs5,000 a year. This rate is too small and uneconomic to collect.”

Yet, according to the report, a “big number of prospective taxpayers such as boda boda cyclists, members of the Uganda People’s Defence Force, the Police Force, Prisons, Local Defence have been exempted from paying LST.”

To a large extent, local governments (LGs) depend on central government transfers, which are not only highly conditional but also too small to have them render meaningful service delivery.

For example, in this financial year 2017/18, only Shs2.5 trillion has been allocated as the resource envelope for more than 167 local governments, including municipal and town councils.
On average, about 90 per cent of revenue at the LG comes from the central government while 10 per cent is locally generated.

Government revenue contributions to the LG budgets have remained low at an average of 3 per cent.

How LGs can be helped
Under the current law, urban local councils (municipalities and town councils) do not remit any local revenues to the district. However, these have highest sources of local revenues such as business licences and fees.

As a result, the districts depend on rural lower local governments (sub counties) whose local revenue sources are very low. A policy should be put in place requiring the urban local governments to submit a favourable percentage of revenue to the lower local governments.

The report further noted that local revenue mobilisation is undermined by the central government and some political heads who have made countless pronouncements that undermine the efforts by LGs to boost their revenue performances.

A case in point is the abolition of graduated tax and bicycle licences.
In order to curb this practice, there is need to develop and operationalise a local revenue policy that will, among others, curtail the prevailing negative political interventions. It also became evident in the report that senior district technical staff and the political wing rarely monitor the activities of the revenue collectors.

“Consequently, most sub-counties under-declare or fail to declare how much revenue they collect. Therefore, there is need to put in place strict procedure to ensure that lower local governments provide correct information,” reads the report, in apart.

This is further complicated by improper tendering of revenue sources, leading to losses in revenue collections for a number of LGs.

In this regard, before tendering out a revenue source, LGs should be able to establish a reserve price or optimal levels expected to be collected from each source.

This will form a good basis for estimation of the amount expected from the revenue sources and this will guard against the exploitative revenue tenderers.

The Local Government Finance and Accounting Manual 2007, procedures on expenditures require that LG officials should not spend the revenue collected at source. As a result, less revenue collections are registered hence limiting the amount of money available for allocation to social services.

Across the local governments in Uganda, the issue of local revenue mobilisation is mainly handled by accountants. There is need to establish an independent revenue department/unit within each LG and further strengthen its capacity to collect local revenues.
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