Tax compliance still a big problem, economists say

People look at smuggled goods being destroyed in Kampala recently. Tax compliance is still a problem in Uganda going by the current 13 per cent tax-to-GDP ratio. FILE PHOTO

What you need to know:

Low. Uganda is still collecting 13 per cent tax-to GDP ration.

Uganda’s taxation policy does not require any new tax proposals to increase collections but rather a compliance with the existing law.

Speaking to Daily Monitor on the sidelines of the World Economic Forum on Africa in Kigali, Rwanda last week, Mr Keith Muhakanizi, the permanent secretary in the Ministry of Finance, blamed the 13 per cent tax-to-GDP ratio on the low tax compliance.

“Still, we are collecting below 14 per cent of GDP, which is still very low. So, how do we get to 15 per cent, 16 per cent, 17 per cent, 20 per cent of GDP as revenue for the government to enable us to invest in those critical sectors?

“Compliance is still a big problem. We are not saying the rates are low but rather here (Uganda), the rates are competitive globally,” he said.

He noted that the only way to deal with the problem is to enhance tax administration to collect more revenue. “We need to devote more resources from public sector consumption to the investment side if we are to generate more revenues,” he added.

Of particular concern for African economies is the tax avoidance schemes implemented by multinationals to deprive the countries much-needed revenues to provide services.

Additionally, governments often provide exemptions – some as high as 10 years – to companies in order to attract investment.

Responding to this, Mr Muhakanizi said: “In the past, Uganda used to have a lot of tax exemptions for people who came and asked for them. These exemptions have largely been cleaned up.”

On the economy, Mr Muhakanizi said there will be recovery after the 2015/16 slowdown. Uganda’s economy is expected to rebound after it suffered headwinds in 2015 that resulted in an economic slowdown.

Uganda’s performance
The Uganda Shilling depreciated almost 20 per cent in the entire 2015, prompting Bank of Uganda to raise lending rates to avoid a surge in inflation.

The concern however within the economy, is that Uganda is still an importing country, which will continue to expose it to external shocks like the depreciating Shilling.

Mr Muhakanizi noted that the passing of the Shs26.4 trillion 2016/17 Budget is an indicator that the government is focused on areas that will bring that required growth – infrastructure.

Ms Razia Khan, the chief economist, Africa at Standard Chartered Bank, speaking to Daily Monitor at the same forum, said the prospects for Uganda’s growth were positive but there were deficiencies in dealing with distribution.

“We need to get more dispersed growth beyond Kampala,” she said, adding: “This can be accelerated by agricultural processing and tourism if the benefits of the growth are to be felt by the majority of the people in the economy.”
During the forum, questions were raised about the quality of growth on the African continent.

One such critic of the growth is Ms Winnie Byanyima, the executive director of Oxfam International.
Ms Byanyima noted that economic growth needs to get a human face to it.

“We focus too much on economic growth figures. What we need to question more is the quality of this growth,” Ms Byanyima noted while appearing on the panel discussing growth in Africa.

“Growth in Africa has been delinked from poverty alleviation and tackling economic equality,” she added.