Hits and misses in tax

A tax officer reviews a tax payer’s documents in Kampala. Photo | Rachel Mabala 

What you need to know:

  • The ongoing Covid-19 pandemic has complicated the situation for the taxman. Revenue from accommodation and food service activities declined by 37 per cent, education sector by 10 per cent, Arts entertainment and recreation by 31 per cent.

With half year revenue collection calendar already elapsed, Uganda Revenue Authority (URA) is still behind the domestic revenue collection target of slightly more than Shs22 trillion. And there is no guarantee that the tax body will hit its revenue collection target by the end of this financial year in June.

The ongoing Covid-19 pandemic has complicated the situation for the taxman, compelling tax experts, economists and policy analysts to pronounce a grim future for revenue collection efforts.    

While releasing the revenue performance for the Financial Year (FY) 2020/21 and the outlook for the Financial Year 2021/22, when the tax prefect celebrated 30 years of existence, it emerged that there is more work to do.

By close of the previous FY2020/21 six months ago, URA collected Shs19.2 trillion in net revenue and posted a 14 per cent growth in revenue in comparison to the FY 2019/20 and an estimated tax to GDP ratio of 12.99 per cent.

In real terms, this reflects a revenue growth of Shs2.5 trillion and a growth in the tax to Gross Domestic Product (GDP) ratio of 1 percentage point. Unfortunately, it missed the target by Shs2.3 trillion.

But this target was approved by Parliament before the impact of Covid-19 set in and macroeconomic variables that affect revenue such as GDP growth were projected at 6 per cent yet by the end of the financial year, GDP growth was at 3 per cent.

Both domestic revenue and custom performance was below bar.

The domestic revenue collections in the FY 2020/21 were Shs12.144 trillion, registering a growth of 13.7 per cent (Shs 1.46 trillion in real terms) in comparison to the FY 2019/20. However, the collections were below the target by Shs1.8 trillion. 

With half year revenue collection calendar gone, customs revenue collections were Shs495 billion below target as the year 2021 closes.


Sectoral contribution to revenue

By close of the year, about 71 per cent of the revenue was generated from the top four sectors of the economy with the wholesale and retail trade sector registering the biggest  which amounted to Shs5.7 trillion (29.43 percent), according to the half-year revenue performance report.

The manufacturing sector followed with a contribution of Shs4.4 trillion (22.70 percent). The Information and communication sector contributed Shs2 trillion (10.48 percent), while Shs1.6 trillion (8.39 percent) was generated from the financial and insurance services sector.

There was a growth in revenue from key sectors such as manufacturing which grew by 27.5 per cent, information and communication by 25.7 per cent, wholesale and retail by 19 per cent and financial and insurance services by 5.5 per cent.

Dropped revenue

However, some sectors witnessed major declines in revenue in the FY 2020/21, compared to 2019/20 and this was pegged to a slow down in business resulting from the Covid-19 pandemic. Revenue from accommodation and food service activities declined by 37 per cent, education sector by 10 per cent, Arts entertainment and recreation by 31 per cent.  

Presidential concern

During a thanksgiving celebration in September at Kololo Independence Grounds to mark 30 years of URA, President Museveni expressed disatisfaction over corruption and the widening the tax base.

President Museveni’s questioned why Uganda’s tax base has stalled at 12 per cent, below that of Kenya, Tanzania and Rwanda, and far below the 16 per cent which is the sub-Saharan African performance average.

He said to attain self-sufficiency, Uganda should double its Tax to GDP ratio from the current 12 per cent to 26 per cent, a task the URA Commissioner General, Mr Musinguzi Rujoki said, “they have since embraced and are doing everything they can to deliver it.”

In an effort to achieve the target, Mr Rujoki said URA is intensifying tax education in addition to deepening Alternative Dispute Resolution (ADR) mechanism where cases are amicably resolved out of court.  This initiative has since yielded Shs365 billion in revenue since the beginning of the Financial Year 2020/2021 thus unlocking revenue that had been tied up in Court cases with some of large taxpayers.

“We intend to continue pursuing this approach in the FY 2021/22, since it provides a win-win solution to the taxpayers and URA,” Mr Musinguzi noted earlier. 

Out of court      

During the FY 2020/21, these led to a recovery of Shs67 billion as a consequence of 5,823 seizures. 4,843 seizures were issued on dutiable goods and 980 seizures were issued on non-dutiable goods. Major offences were due to under-declaration at 59.39 percent, mis-declaration at 18.38 percent, other offences [Inclusive of; temporary road violations, transit violations,] among others.

In terms of litigation, a total of over 259 cases were filed of which 231 were civil and 28 criminal cases. During the financial year 2020/21, 65 cases were ruled in favor of URA while 20 were in favor of the taxpayers.

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