What you need to know:
Performance. The number of taxpayers on the URA register have grown to 785,000 according to statistics.
Kampala. A slump in sales of locally manufactured beer, the One Network Area (ONA) and reduced Value Added Tax (VAT), all contributed to the failure by Uganda Revenue Authority (URA) to hit its first quarter target.
In collection statistics released last week, the revenue body collected Shs2.46 trillion in the first three months of the financial year from July 2015, short of the Shs2.5 trillion target over the same period.
According to the authority, the deficit was due to the poor performance of domestic taxes.
Domestic tax collections amounted to Shs1.3 trillion against a target of Shs1.36 trillion.
There was less VAT payable by the oil and gas, electricity, soft drinks and beer segments.
“This was due to increased capital investments in the sectors, which affected the net VAT payable because VAT is not a tax on investments,” said Ms Doris Akol, the URA Commissioner General.
Notably, the initiative by Kenya, Uganda and Rwanda to have the One Network Area that saw the reduced roaming charges among the three countries affected revenue collections.
“The exemption of calls within the Northern Corridor led to a decline in revenue from the international calls levy by 38.21 per cent, compared to the same period in the last financial year,” she added.
Already, telecom companies like MTN Uganda announced in their half year results a few months ago that their voice call revenue had declined because of the ONA. MTN’s total revenue was affected by a 12.8 per cent decline in incoming voice revenue, which means the amount remitted to URA also declined. All Ugandan telecom companies are part of the ONA.
Appetite for imports
Additionally, locally manufactured beer sales dropped, which affected VAT collections. However, this didn’t mean demand for beer had slowed down. There was a shift to imported brands like Guinness and Tusker Malt Larger.
Imports of Guinness and Tusker Malt increased by 59 per cent and 13 per cent respectively, according to URA.
The above target performance of international trade taxes was also an indicator that imports were still an integral part of the economy. This is despite the strong dollar that has made imports cheaper. URA indicates that taxable goods increased by at least Shs67b in the first quarter. Additionally, imported goods that attract VAT increased by Sh387b in the first three months of the financial year.
“Major items that registered growth in VAT on importation include hot rolled iron, telephone equipment, goods transport vehicles, lubricants and bulldozers,” the URA collection report points out.
However, international trade taxes could have even grown much faster if the fuel imports had registered higher growth rates. Fuel companies, even with the drop in global oil prices by 53 per cent in the last one year, did not increase imports as earlier anticipated. URA had expected a fuel import growth rate of 24 per cent instead it was 9.7 per cent.
More taxpayers join URA register
Uganda Revenue Authority, working with the Kampala Capital City Authority and the Uganda Registration Services Bureau, has increased its taxpayer numbers following absorption of several informal players into the tax bracket, trading licence database and company registry, data shows.
Latest figures compiled by URA indicate the total number of individuals and businesses recorded in the country’s tax register had risen to 785,000 at the end of June, compared with less than 100,000 recorded in 2009. Another 40,000 new taxpayers were added to this register between July and September, the data reveals.
The government plans to add 500,000 new taxpayers to the register during the current financial year while Shs58b ($16.2m) is to be raised from enforcement of presumptive income tax — a form of tax assessment applied to businesses that lack organised financial records.
For example, a carpentry or metal workshop located in Kampala city with an annual turnover of Shs35m to Shs50m ($9,798-$13,997) is required to pay presumptive income tax of Shs500, 000 ($139.9).
In comparison, a similar business located in the same administrative zone with an annual turnover of Shs10m to Shs20m ($2,799-$5,599) is obliged to pay presumptive income tax of Shs250,000 ($69.9).
Though growth in the taxpayers’ register bears relief for government technocrats desperate to widen the narrow tax base, insufficient operational capacity could affect URA’s ability to serve new taxpayers effectively, observers say.
Currently, URA operates 70 branches countrywide, with 32 alone designated for domestic taxes while the rest offer customs clearance services — a figure deemed insufficient for delivering services to several new taxpayers scattered across small, remote and underdeveloped rural areas. Slow penetration of Internet access in rural areas also complicates matters.
In addition, limited funding of URA’s operations has frustrated new investments in its operations base.
The economy is expected to slow down this financial year and this could creep into revenue collections as companies apply the brakes on investment. Bank of Uganda (BoU) already projected that the economy will grow at a much slower rate of 5 percent instead of 5.8 percent as previously projected.
In the October 2015 monetary policy statement, BoU governor Emmanuel Tumusiime-Mutebile said domestic demand would slow because of reduced exports, depreciation of the Shilling and the tight monetary policy.
URA is expected to collect at least Shs11 trillion for the entire financial year 2015/16. Already it has experienced a shortfall and that has been visible in monthly collections of July, August and September. The government has also been on the look-out for money to spend, on one hand blaming URA for not remitting money on time.
In fact, the Ministry of Finance is already seeking a review of the Public Finance Management Act, 2015 to allow the BoU to advance money to government in case of delayed remittance of funds to the Consolidated Fund by URA.
URA is, on the other-hand, putting on a brave face that they can meet the collection targets for the financial year, despite the challenges in the economy.