City traders fighting a losing battle on tax. They need to wage a different war

I felt rather sorry watching President Museveni address city traders in an attempt to defuse a simmering dispute over tax. Most of what Mr Museveni said was factual and in line with correct policy.

  His government scrapped regressive export taxes. A lot of production, for instance in agriculture, is not taxed. Imports of raw materials are tax-free. The tax on intermediate goods used in production is low, and so on. The underlying arguments were also cogent and in line with conventional wisdom. For instance, to encourage local production and import substitution, imported goods that can be made locally are taxed highly.

 The traders were having none of it. Some of their leaders had already set a confrontational tone in their submissions, including by mixing a poor understanding of tax law and tax administration. Some of their charges, bored after a day of waiting in the hot and humid tent, committed sacrilege by turning their backs to the President and attempting to walk away. They were dutifully roped back in by the presidential guard, but the point had been made.

It has become custom for most people who meet Mr Museveni to turn up with begging bowls in hand. If they are not asking for handouts to sort this or that personal emergency, they need a presidential intervention to ward off land encroachers, settle commercial or family disputes, or get political endorsements. The bigger traders and manufacturers, too, often wring out presidential favors to navigate tax disputes or close funding gaps but some in the audience here fell in that hard-to-reach middle; not too rich to require presidential protection, and not too poor to need handouts.

  A first-time visitor to the country would have been fascinated by the dysfunctional nature of it all. Why, they would wonder, was a tax dispute being mediated by the President? And why was it all happening via loudspeaker at a rally on a hot afternoon in front of thousands instead of a handful of people in a closed room with stacks of position papers?

   Part of the answer is to be found in the overreach of the Presidency which has sucked vitality out of almost all other public offices. Nothing can be done without a smoke signal from the State House about the direction of travel of political exigency.

   A lot of time, however, is a demand-side problem. Some of the traders downtown are self-made dollar millionaires and even the smaller ones have some decent coin, but they have not seen it fit to mobilise and invest in lobbying to direct public policy. As a result they asked the wrong questions and, as expected, received the wrong answers.
    Two examples suffice. First, the President is right on the need to use tax policy to trigger import substitution, say on textiles, and some big-name traders in fact have warehouses full of sewing machines trying to stitch their way down the value chain. The traders should ask why this is not happening at scale, and why most of the success stories here involve ‘foreign investors’ and not local actors.

 Asking to be allowed to import cheaply goods that can be manufactured here is bad economics and poor politics; the traders ought to have come with a solid plan with asks that would allow them to do the manufacturing here themselves. Opportunity went left; preparation went right.
 If the traders are too diverse and their interests too varied to make such proposals as are in line with declared government policy, they should then side-step the sausage-making of tax administration – however cumbersome and repressive it might be – and approach the matter from the end; the tax outcomes.

    Where has all the tax gone, they could have asked, and then given the President examples of wasteful public expenditure, or unwarranted tax exemptions that need to be culled. The traders could have argued the state of the roads, the cost of electricity, or the quality of schools and hospitals in order to extract some concessions; if you want us to show you the money, show us where it is going.

 They could have even gone a step farther and argued, having run the numbers, that cutting the VAT tax rate for instance, can spur consumption, investment, and a higher tax yield. It was a missed opportunity, but there is room and time to reframe the argument.
Protesting against a tax collection tool is a war the traders will not win. They will find more success in demanding that tax policy is used to grow local firms – and that tax collections are spent carefully on citizen needs. That is a winnable war with many willing foot soldiers beyond the traders. 

Mr Kalinaki is a journalist and  poor man’s freedom fighter. 
[email protected]; @Kalinaki