Uganda needs a tax reform to compete in EAC

Last week business leaders from the private sector and various trade associations met at the Kampala Serena Hotel to discuss various issues affecting their businesses in Uganda and came up with a number of proposals and recommendations for the Government to consider. These recommendations will be compiled into a pre-budget proposal document which will be presented by PricewaterhouseCoopers to the Minister of Finance, Planning and Economic Development on behalf of the business community. These proposals form part of the private sector submissions and recommendations to the Government as part of the National Budget making process. Over the last three years a total of 98 recommendations have been made to Government arising from deliberations from this forum and out of these, 32 have been adopted by the Government,18 of which have been in form of changes in the tax law.

The general mood and feeling among the business leaders who attended the forum, was that the economy is doing well, and many of their businesses made good profits last year despite the global economic crisis. On the issue of the EAC common market which comes into force on 1 July this year, there was consensus among the business leaders that the common market is good and many of them were very positive about the opportunities that the bigger EAC market provides for their businesses. However business leaders warned that the creation of a common market alone will in itself not be enough to transform the EAC economies. The common market will simply provide a wider market for goods and services, but in order for the benefits of this wider market to be fully realized, there are a number of issues that will have to be addressed first. The issues that were identified as priority areas for the Uganda Government to focus on in this year’s budget include; increasing access to finance through market-enabling policies, which remains one of the top constraints to businesses; removal of all existing barriers to trade, especially with regards to movement of goods across borders, increased investment in road, rail, power and energy infrastructure. The forum recommended that the Government needs to find new innovative strategies to finance public infrastructure. Such initiatives would be especially important for infrastructure development which would not only result in immediate job creation but also create the foundation for the future economic and sustainable growth.

Lack of access to finance was identified as the number one constraint to businesses in Uganda, followed closely by poor infrastructure, corruption and inefficiencies in the public institutions. The forum acknowledged that a lot of progress has been made with respect to Customs reforms and trade facilitation in the region. The URA has been at the forefront of these reforms with initiatives such as one stop border posts, harmonisation of documentation, longer opening hours and generally a more efficient business friendly customs service.

A number of tax issues were also identified and discussed in detail. Business leaders emphasized the need for Uganda to align its tax policies, tax regulations and tax rates with other countries in the EAC in order to ensure that Ugandan businesses can compete fairly without any tax disadvantages. Some of the key tax issues that were identified were the very low personal income tax threshold in Uganda compared to other EAC countries, the lack of any incentives for long term personal savings, the very high rate of excise duty on air time, the uncertainties in the VAT laws especially with regards cross border trade in services, and so many others. With regards to the country’s progress towards the transformation to an industrialized economy which is one of the Government’s ambitions, business leaders at the forum observed that the huge oil discoveries in Uganda and the petrodollars expected, will, and should transform Uganda into an industralised economy, if managed well.

The writer is a Tax Partner, PricewaterhouseCoopers, Kampala.
francis.kamulegeya@ug.pwc.com