Using taxes for short-term fixes bad for business, says private sector

Taxes have a large implication on business. EFRIS-related strikes impacted both private sector and government revenues. Photo / Michael Kakumirizi 

What you need to know:

  • The private sector says that government should formulate a calendar of tax measures to be introduced so that they have ample time to adjust

Private sector and tax experts have asked government to overhaul the tax system administration with the view of ending the habit of creating tax measures for short-term fixes. 

Such taxes, they argue, affect the stability of businesses and do not provide an in-depth and comparative assessment of the effectiveness of the tax system in meeting policy objectives. 

While speaking during the post-budget breakfast hosted by Ernst & Young in Kampala experts noted that tax policies cannot keep changing because this is not good for investment and destabilises businesses, especially those with an elastic value chain. 

Mr Muhammed Ssempijja, a tax partner with Ernst & Young, said some of the new tax policies seem to be focused on the short term, with little focus on the medium and long term. 

“When you look at some of the [tax] policies they are just about raising the revenue within the short time,” he said without going into details.

In April, government proposed a raft of tax additions on petroleum products and new ones on income generated from the sale of land, among others, which were passed by government and will be implemented in July during the 2024/25 budget cycle. 

This is the first time government has introduced new taxes since the Covid-19 hiatus in 2020, in which new tax policies were paused due to a dampened business environment and heightened uncertainty. 

Government has previously introduced taxes such as over-the-top, (OTT), which many experts noted was a short-term fix with little to no research at all. The tax has since been scrapped after repeated underperformance. 

Mr Muhammad Mabirah Muzamail, Uganda Manufacturers Association manager for policy and advocacy, said Uganda Revenue Authority continues to rely on old policies in an environment that has gone through so much changes. 

“We need to review the tax system. We cannot keep using old policies. There is need for a tax administration overhaul,” he said, noting government continues to use piecemeal adjustments to fix things instead of updating the tax administration system. 

Mr Hadijah Nannyomo, the Ernst & Young partner for direct taxes based in Kenya, Nairobi, said tax administration systems in the region keep changing, which is not good for private sector investment, noting that beyond collecting taxes, government must also examine the impact on a tax on the wider value chain. 

“If you are going to introduce excise duty on opaque beer, there is need to understand the livelihoods of the people producing the raw material,” she said, noting that whereas one of the principles of tax is generating resources, there is need to ensure that it is equitable, support growth and ensures the principle of the social contract between the citizens and government.

Exhaustive tax policy 

Mr Emmanuel Njuki, the Nile Breweries head of legal and corporate affairs, told Daily Monitor on the sidelines of the meeting that there is need to have an exhaustive tax policy implemented through a calendar, because “it gives the private sector breathing space” to adjust away from the current system that introduces tax policies in bills that are passed within months. 

For instance, he said, the raw material that Nile Breweries uses for its Kibuku products has a value chain of 25,000 farmers across 31 districts, but beyond farmers there is a wide value chain that will be impacted by the new tax. 

In April, government proposed a 12 percent levy on Opaque beer products such as Kibuku, which has since been passed by Parliament.