Covid-19: Will URA meet its revenue collection targets?

Wednesday April 1 2020

Vegetable vendors in Mbale Central Market.

Vegetable vendors in Mbale Central Market. PHOTOS BY RACHEL MABALA  

By Ismail Musa Ladu

As the Coronavirus (Covid-19) continues to take its toll on businesses and the economy, a section of tax experts are afraid of the pandemic’s implications on domestic revenue mobilisation efforts.
This position is also shared by some economists, policy experts and financial chartered analysts who believe that as long as the COVID-19 continues disrupting business, Uganda Revenue Authority (URA) will suffer the consequences.

With about three months to close the revenue financial year collection calendar, former URA Commissioner General Doris Akol believes it is never over till it is over.
The tax Authority hopes to collect somewhat more than Shs10.4 trillion in the second half of the financial year 2019/2020 (January to June 2020) to beats it financial year revenue target collection of slightly more than Shs20.4 trillion.
Of this, tax revenues amount to just over Shs18.8 billion, while Non-Tax revenues (NTR) accounts for slightly over Shs1.5 billion.

Tax experts speak out
However, the tax body’s optimism is not proportionally shared among the tax experts and analysts whose daily business includes, among other things, studying URA’s operations.

When contacted last week, the Tax Partner/Country Leader for EY, Mr Muhammed Ssempijja, said it is very difficult to see how URA will come out of this fight (with Coronavirus pandemic) unscathed.
In response to whether URA will beat its revenue collection targets, Mr Ssempijja nodded in disapproval.
“I agree that the target will most likely not be met. Before Covid-19, it was becoming clear that beating the revenue target was going to be very hard.”

He continued: “But the Coronavirus pandemic has just made it more certain. This means the target will not be met. In my view, possible revenue collection for the whole year may be in the range of Shs16 trillion to Shs17 trillion.”
The executive director of the East African School of Taxation (EAST), Mr Godfrey Akena believes that it will take something extraordinary to save the tax body from registering shortfall this financial year.

When interviewed last week, he said: “Bearing in mind the interruption being caused by COVID-19 to both international and domestic economy, I don’t think the target is going to be achieved. I believe the target is out of reach and I also think it should be reviewed downwards.”

URA’s optimism
For Ms Akol, it is a bit early to conclude that the tax body will close the revenue collection financial year calendar with a shortfall.
According to her, there is no need for panic at this time because that is simply “unhelpful.”
Responding to fears regarding the looming shortfall by tax experts and analysts alike, she said: “We still have a whole quarter to go. We are optimistic that the economy will bounce back and this unfortunate situation will end soon.”
Ms Akol predicts significant interruptions to businesses where profitability will be impacted, lowering corporation and individual income tax.

Uganda Airlines planes parked at Entebbe
Uganda Airlines planes parked at Entebbe International Airport. President Museveni recently ordered the closure of all Ugandan borders for both exits and entries to limit the spread of coronavirus.. PhOTO BY RACHEL MABALA


This will affect small to middle income taxpayer segments, reducing manufacturing productivity due to lower purchasing power and demand. As a result, this may affect both Value Added Tax and Excise duties.
According to the director economic affairs at the Ministry of Finance, Mr Moses Kaggwa, the ministry is analysing the impact of Coronavirus pandemic on the economy, including the revenue. Once the impact is assessed, he notes, “Revenue projections will be reviewed.”

Analysts weigh in
The Director, Private Sector Development at the Private Sector Foundation Uganda (PSFU), Mr Moses Ogwal, says revenue generation and collection is hinged on many other things that are beyond URA’s control.
He said: “Revenue is the product of the economy. It is the economy that generates revenue and not the other way round. So if the economy is being impacted, then revenue generation will take a hit. The key issue here is to revise government expenditure to fit the situation. This means revising estimated revenue.”

But for Dr Fred Muhumuza, a lecturer at Makerere School of Economics, URA is riding its luck really hard.
This is because, according to Dr Muhumuza, the signs were already on the wall long before the pandemic struck.
“Even the collection of the first half of the financial year fell short by nearly Shs700 billion. We shall be lucky to pick Shs7 trillion in the second half of the financial year!”

Net revenue
During the period July to December 2019, URA collected net revenue of Shs9 trillion and posted a growth in revenue of 11.15 per cent in comparison to the same period in the financial year 2018/19. This reflects a growth in revenue of Shs907.05 billion. It should be noted, however, that the outturn is short of the projected figure of slightly more than Shs9.7 trillion by Shs697 billion.
Ms Susan Khainza, a Chartered Financial Accountant (CFA), does not believe the tax prefect will achieve the target it set to accomplish in the beginning of the financial year.

She notes: “It is not likely that URA will achieve its revenue targets for the second half of the financial year. The impact of the global coronavirus crisis has mostly been negative. Taxes on international trade which contribute almost 45 per cent of our Gross Tax Revenue have been affected by the fact that imports cannot come into the country, especially from China which is our top source of imports.

“Both the social distancing and the recommendation to stay at home have negatively impacted the alcohol industry which is one of our top taxpayers. The tourism industry has also been affected by the closure of borders, cancellation of bookings, conferences, hotels and restaurants yet it contributes significantly to tax revenue.”
She continued: “Possible job losses in several sectors means a loss of PAYE tax revenue. The uncertainty surrounding the virus makes it difficult for companies and individuals to make decisions and take out loans directly affecting private sector growth and the growth of the economy as a whole.”

On the other hand, Ms Khainza noted that although industries have been negatively affected, supermarkets are filled with panic buyers buying items like sanitiser and toilet paper, boosting tax collection from those industries, but she warned that this will not be enough to offset the lower tax revenue caused by the loss of business in the other key sectors of the economy.