Government warned against tax increments

Why the increment? Government seeks to raise taxes in the wake of donors withdrawing foreign aid to Uganda and the anticipation of a 93 per cent decline in export support to the budget.

The government has been advised to exercise caution as it considers increasing taxes in the forthcoming budget to avoid suppressing economic recovery which has started taking shape after a two-year slowdown.

Speaking to journalists in Kampala on Wednesday, the Standard Chartered Bank’s regional head of Research for Africa, Ms Razia Khan said increasing taxes could constrain businesses which will in turn have spillover effects on the economy.

The Daily Monitor reported mid this month that government had lined up a number of new taxes as well as increasing existing ones in the 2013/14 financial budget. According to reports, government seeks to raise taxes in the wake of donors withdrawing foreign aid to Uganda and the anticipation of a 93 per cent decline in export support to the budget from Shs749 billion in the current budget to about Shs50 billion in 2013/14.

Private sector
Private sector representatives also opposed government’s plan to increase taxes, saying the move will increase the cost of doing business and hamper Gross Domestic Product growth.
An extra levy of Shs50 is, for instance, proposed on fuel.

Mr Gideon Badagawa, the Private Sector Foundation Uganda executive director, is quoted to have said although he is aware that the government is struggling to finance the budget after donors withdrew aid, transferring the burden to taxpayers would not be the solution.

“Increasing taxes without promoting investment is unsuitable,” Mr Badagawa said, adding that attempts to widen the tax base from the current 12 to 13 per cent should be as a result of natural growth of the economy and not through “distressing measures.

Ms Khan, however, said the government needs to deploy a longer term and gradual domestic revenue mobilisation policy to widen the tax base and grow its revenue collections as a percentage contribution to GDP, which has stagnated at 12 per cent for over four years.
The country’s revenue contribution to GDP is far below Sub-Saharan Africa’s current average of 22 per cent.

“There needs to be a longer-term framework in place to think about what would be reasonable to grow the revenue share to GDP and think in a long term framework to get Uganda from where it is to where it needs to be,” Ms Khan said.

She, however, discouraged government from giving tax holidays to investors, saying Uganda is not in a strong enough position to give away revenue in form of tax incentives.
She said African countries should desist from giving away their revenue base to investors, adding that “it’s not worth it.”

fkulabako@ug.nationmedia.com