Whatsapp with taxing Facebook but not boda bodas? A lot, if you think about it politically

Wednesday April 04 2018

We learnt recently that President Museveni has been haranguing the Ministry of Finance and Uganda Revenue Authority to collect more tax. Apart from closing loopholes in rental property tax, the President now proposes some form of tax to be imposed on social media usage. Mr Desperate Times, Ms Desperate Measures is on the phone for you.

It is not clear how such a tax would work and, quite frankly, inquiries in this direction are rather pointless. Energies are better expended on understanding the problem with our taxes and thus what needs to be done about them (many Ugandan readers will be surprised to learn that taxes can be reduced!).
First, the problem:

The amount of money we collect in tax grows every year, but not as quickly and as broadly as it should. The amount of tax we collect relative to the size of the economy grew from 10.6 per cent in 2008/9, but has stagnated at around 13.1 per cent since over the last four years. This is lower than Rwanda, Kenya and Tanzania and, as a useful measure of state efficacy, shows we are less competent managers of things than our neighbours. Examples of this abound and need not be repeated here.

Then, the symptom: Because we do not collect enough taxes, we have developed a large appetite for debt. Yes, there are a few roads here and there that we are building with our own money, but all the major energy and transport infrastructure projects around us - from the traffic lights in the city to urban markets and rehabilitated schools - are being done using borrowed money.

‘So, where,’ I hear you ask quietly, ‘do my taxes go?’ Short answer: To buy and fuel the large fleet of 4x4 Land Cruisers in which government officials, whose salaries and pensions you also pay, are driven down the wrong side of the road so that they can fly first-class to Beijing to sign for yet another loan.

So, what’s the solution? Very simple: A good tax regime that is fair, simple, transparent and built on a foundation of equity: Every one pays their fair share, and the money is spent on the right things. To understand our failure to implement such a relatively simple idea, we need to see taxes not as economic measures but as political signals.

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The President, who speaks about broadening the tax base, is the same President who has stopped authorities from taxing boda boda riders, market vendors and who scrapped Graduated Tax. It is the same President who continues to sign off on tax waivers and grant tax exemptions to investors, despite evidence to show the inefficacy of such measures.

There is a flawed logic to this contradiction; governments act in accordance with the way they are financed and, by extension, maintained in power. Imposing a tax on 100,000 property owners or a million social media gossips – many of whom can’t be bothered to vote – carries less political risk than reintroducing graduated tax, a tax on idle land, or withdrawing concessions from donors to political campaigns.

In all fairness, tax revenues, in real terms or as a percentage of GDP, grew strongly in the immediate post-war period from 1986 and also in the few years after the end of the war in northern Uganda. That they have been stagnant after 2011, when the economic honeymoon ended and triggered urban angst, points to the political settlements necessary to maintain the government in power.

We are where we are because this is as far as the political arrangements of 1986 and the years since can take us. We cannot grow without investing in infrastructure, but we cannot invest in it without drowning in debt or overheating the economy. We cannot create jobs without breaking down the very monopolistic, incestuous and manipulative capital arrangements that have kept the government in power all this time.

The President is right in trying to close loopholes: Tax evasion and avoidance by multinationals is a good place to start, and property taxes, especially on idle land can trigger wider reforms in the economy, as would scrapping wasteful tax exemptions. Imposing more taxes on the same band of small urban salaried workers is opportunistic.

Reducing taxes in some areas, say to stimulate investment, will create more jobs and expand the pie. We cannot expect to solve today’s tax dilemma with the same 30-year-old knowledge that created it. Thankfully, the President is marking his own homework.

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

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