What you need to know:
Category. Most of the wealthy are said to be from the informal sector who transact in cash
Wealthy Ugandans must pay more taxes, a group of civil society organisations (CSOs) advocating for fair and equitable taxation have said.
As at 2009 for example, the top 0.5 per cent of taxpayers in United Kingdom paid 17 per cent of total income tax.
In Germany, the top 0.1 per cent paid 8 per cent, and in United States of America, the top 1 per cent paid about 40 per cent of federal income taxes.
According to the Southern and Eastern Africa Trade, Information and Negotiations Institute (SEATINI-Uganda), Civil Society Budget Advocacy Group and OXFAM, there is evidence that taxing rich individuals more can lead to significant boosts in revenue.
Speaking yesterday in a meeting where the CSOs presented alternative tax proposals to the parliamentary committee on finance, SEATINI-Uganda country director Jane Nalunga said the wealthy should contribute more in terms of taxes than it is currently the case.
She said: “We need development but the question is where the money will come from. I think we must mobilise it domestically and we should begin by having the rich pay more and the poor pay less taxes.”
She continued: “We must be fair and equitable and not having those who can pay more pays less.”
In his submission, committee chairperson Henry Musasizi Ariganyira, who is also the Member of Parliament for Rubanda, said currently, the process to change the tax law with view of accommodating some of the CSOs proposals is underway.
He also noted that property tax is not enforced as it should be, saying most property moguls in the country are out of the tax man radar.
Mr Lawrence Bategeka, the MP for Hoima Municipality, and also the vice chairperson of the committee, on national economy said in an interview yesterday that taxing the rich is a good proposal that will be difficult to enforce unless a parameter and a data base of who is rich has been instituted.
However, for the beginning he said: “Most of these rich people invest in properties so their properties should be directly taxed irrespective of how they acquired it.”
A working paper, produced in January 2016, titled: ‘Boosting Revenue Collection through Taxing High Net Worth Individuals (HNWIs): The Case of Uganda,’ authored by a group of tax researchers, including; Jalia Kangave, Suzan Nakato, Ronald Waiswa and Patrick Lumala Zzimbe, collectively, argued that there is a need to tax more wealthy/rich people in Uganda because they are not contributing adequately in this cause despite earning huge incomes in Uganda.
According to the researchers, personal income taxes of the rich Ugandan remain largely untapped.
“We believe that the extremely low level of individual contributions to domestic taxes is partly explained by an emphasis being placed on the taxation of companies, at the expense of taxing individuals,” the report reads in part.
In financial year (FY) 2013/2014, the report by the four authors says only 4 per cent of the total tax collection was attributed to individuals.
In the same period, individuals remitted less than one per cent of total domestic tax revenue, compared to the eight per cent that they contributed to international trade taxes—what a mismatch!
Part of the solution to this problem, they say, lies in managing the compliance of individuals generally and wealthy individuals in particular.
URA position on the matter
In an earlier interview with URA acting commissioner general Dicksons Kateshumbwa, the perception that HNWIs are not being taxed enough is not entirely accurate. He says there is already a unit dedicated to deal with these matters and they are registering a lot of success.
In another interview with commissioner for domestic taxes, Henry Saka, when asked whether the HNWIs are taxed enough, he said: “Yes and no.”
He continued: “We accord a lot of attention here. We have already set up a unit for that and we have commissioned further research on how we can handle this (HNWIs) better because this is an area that has a lot of potential.”
He said as a tax prefect, it is in the institution’s interest to have everybody captured in the tax data base. But as for the HNWIs, he said they are still very few. He said in number they do not exceed 150 HNWIs.
Other wealthy folks
Most of them wealthy individuals are in informal sector.
They transact mainly in cash, do not keep proper books of account, are not registered with government agencies, many do not deposit their money in bank accounts, and they have less than five employees.
Then there is the category of civil servants and politicians
who are the rich?
Net worth. There is no universally accepted definition of rich/wealthy people in this case HNWIs, but various wealth reports associate these individuals with a net worth of at least $1m (Shs3.3b) held either directly or indirectly through controlled entities such as private companies and trusts
Real estate. For Uganda’s case, the wealthier an individual becomes the more commercial structures he or she put up.
The four researchers in their report revealed that while many wealthy individuals are traders who deal in the import and export of goods, most of the proceeds from their businesses are invested in real estate.
Similarly, even professionals, such as lawyers, doctors, architects and engineers often subsequently invest their earnings in land and commercial buildings.
Even the wealthy individuals in manufacturing, construction and commercial agriculture, including individuals whose wealth is attributed to their directorships and shareholdings in some of the top taxpaying companies all end up investing their income in real estate or commercial properties.