High tax agenda only likely to stunt economic growth

Government has published its proposals to raise revenue for 2018/2019. The chairman of the National Planning Authority, Dr Wilberforce Kisamba-Mugerwa, has announced that economic growth has failed to meet expected targets for some time. Economic growth has averaged between 4 per cent and 5 per cent per annum, according to official figures even though private sector observers note economic activity is much more subdued.

Since 2012, government has embarked on a suicidal mission to increase both direct taxes on income and indirect taxes, levies and fees.
Once a tax is established, there is only one way for it to go, go up.

Parliament has acquiesced in a high tax regime on a ballooning budget and drying foreign donor inflows whose impact is starting to be felt in key sectors like health and education. The inflationary situation has raised wage demands in the public sector and in the new financial year, government is proposing raises in part of the civil service.

Uganda’s personal income tax rates level out at 39.6 per cent and a further 10 per cent surcharge above Shs120 million a year meant to reap extra from high net worth individuals. Given the way things are going, its likely that URA will soon lay claim to new sectors of the economy like retirement benefits that is managed by NSSF.

This income is deducted and grows tax-free. NSSF also earns a substantial investment income from active and passive investments on behalf of its members.

In 2015, government after passing the Public Financial Management Act, sought to centralise management of “earmarked” fees, levies by statutory bodies and later began to collect them centrally through URA. It already requires statutory bodies to pay income tax on their revenue collecting activities.

In 2018, government is proposing to increase the reach of indirect taxes and levies. Excise duty is now paid on most services at a rate of 10 per cent for each fee paid to entities like commercial banks.

Excise duty is set to go up on beer, alcohol and spirits. Excise duty has been imposed on new items like cooking oil in lieu of the costly tax holidays granted in the sector.

Rather than authorise an industry levy and risk a tax claim, government has opted to pass the cost of this levy to consumers.

Cooking oil like sugar and petroleum hit wide segments of the population. High taxes are associated with other negative impacts like the rise of contraband products, trademark infringement, mislabelling, weight manipulation to meet the challenges of complying with the tax regime.

Rock salt, an important input in the livestock industry sells in two distinct portions, one in the easy-to-access areas at a post-tax rate of Shs25,000 while the second portion in off the road areas goes for just Shs16,000.00.

Taxation of petroleum products has already shown limits as the base cost of fuel has gone up driven by the world market and depreciating exchange rate. Further taxes in this area can only drive up inflation. Taxes on consumption have had a disruptive effect on the services sector. Perhaps relying on the safety of the courts, which have taken a pro-tax stand, government has up to now been immune to any claims of double taxation.

Even where stacking is disrupting sectors like agriculture, tourism, and services, government has soldiered on. Government luckily gets away with many practices like an ambiguous policy on publishing unemployment statistics. Employment data are useful to show if sectors are hiring or shedding more workers.

The collapse of entire chains like Uchumi and Nakumatt and business closures attracts notice, but no major action yet each event of this nature leaves working age Ugandans on the street. The re-casting of businesses like BAT, which no longer manufacture cigarettes in Uganda due to tax and dumping reasons, is the same.

URA sadly seems to be under pressure to plug a problem they didn’t create in the first place, the steep rising cost of public administration.

Mr Ssemogerere is an Attorney-at-Law
and an Advocate. [email protected]