Tuesday November 27 2012

Let’s analyse effectiveness of Uganda’s current tax system

By Francis Kamulegeya

In the words of Oliver Wendell Holmes, U.S. Supreme Court of Justice in 1904, “Taxes are what we pay for a civilized society.”
Governments need sustainable funding for social programs and public investments to promote economic growth and development. Programs providing health, education, infrastructure and other amenities are important to achieve a common goal of a prosperous, functional and orderly society. Those programs require the government to raise revenue from you and me in form of taxes.

Uganda, like all other countries in the world, needs to raise tax revenue to fund the social programs and public expenditure that will enable our economic transformation to an upper middle income economy by 2030. The task of the government in meeting this requirement is not an easy one, particularly in the current economic circumstances. In order to raise the revenue required to finance the government’s program the country must have a good tax system. A good tax system is one that encourages entrepreneurship, investment and business growth. A good tax system must encourages voluntary compliance, minimises the administrative burden of paying taxes, have clear and understandable rules.

In addition the system must be based on the prevailing law rather than the gut feeling, suspicion or perception of the tax authorities. It must be consistently transparently and fairly enforced, and must be characterised by mutual trust and respect between taxpayers and the tax authorities.

So which country in the world has the best tax system? Which country in the world has the lowest tax rate, and which country has the highest? Which is the easiest place in the world to pay taxes? What is the number of tax payments a company in Uganda has to make during the year? How many hours does the average company in Uganda spend in year in order to comply with its tax obligations? What is the average percentage of a typical company’s profit that has to be paid to the government every year in form of taxes?

All these questions will be answered later this month when PricewaterhouseCoopers in conjunction with the World Bank and IFC launch their seventh global annual survey: Paying Taxes – the Global Picture. The Africa launch of this global survey will take place here in Uganda later this month. This is a unique study which investigates and compares tax regimes across 185 economies worldwide, ranking them according to the relative ease of paying taxes.

The results from last year’s survey showed that despite the introduction of the electronic tax filing system in Uganda, the process of paying tax in Uganda did not get any easier. In fact the number of hours currently spent by businesses preparing their tax returns and filing them online increased. As a result of this increase coupled with the major reforms being undertaken by other countries elsewhere in the world, Uganda’s global position with respect to the ease of paying taxes has slipped from 50 in 2008 out of the 183 countries surveyed to 90 as of 2011. In addition, over this same period, the average tax burden on a business in Uganda has also slightly increased from 33% back in 2008 to an average of 35.7% in 2011. This means that for every Shs 1oo a business in Uganda makes in profit, the government currently takes Shs 35.70 of that in form of taxes.

As in previous years, this year’s report is expected to be a catalyst for some interesting debate with respect to the impact of the recent reforms in tax administration have had on the overall level of tax compliance in the country and on the ease of paying tax. Uganda was chosen for the Africa launch because of the government’s current ongoing initiatives aimed at widening the tax base as well as the current focus on improving business competitiveness and private sector development. One such initiative is the Doing Business Reform Task Force facilitated by the Competitiveness and Investment Climate Strategy (CICS) Secretariat at the Ministry of Finance.

The writer is the Country Senior Partner,
PricewaterhouseCoopers Uganda