Government quashes idea of restoring graduated tax

What you need to know:

Much as civil societies want graduated tax reintroduced to inculcate a sense of responsibility among citizens to demand for accountability from government, the latter is opposed to it as Ismail Musa Ladu writes

Men were men.
Those who fall in that bracket of real men, according to Harriet Apolot, a front desk manager with a corporate company, were those who would dutifully pay their graduated tax (G.T).
Nowadays, she said: “I find it difficult to distinguish some men from boys.”

She continued: “They spend most of their time drinking, idling around or even gambling. I don’t see any sense of responsibility in them. When I was growing up such characters would be working or hiding because it would not be long before local taxmen came demanding the G.T.

However, Justus Wagaba, a senior technician, thinks differently.
He is opposed to the reinstatement of G.T., saying he has seen enough of his relatives and friends suffer humiliation as a result of not having the G.T. ticket.

He said: “I have seen people in the villages being arrested in the most dehumanising manner because they didn’t have G.T. tickets. We would be rounded up, sometimes even at 3am! I do not support the reintroduction of this tax—G.T.”

For Phostin Bridget Namude, she is not sure what graduated tax is about. She was too young when the tax was abolished. For that, she was struggling to comprehend it.

When pressed further after explanation, she said it makes sense both ways—either with or without it.
Apolot’s tale, Wagaba’s story and Namude’s narrative are some of the reactions that prompt discussions around the reintroduction of the tax.

Origin and abolition of graduated tax

A motorist rides past a broken manhole cover built a few days before the visit of Pope Francis last year. Photo by Stephen Wandera.

Graduated tax is an old form of taxation which was imposed on adults. It is one of the examples of direct tax. It was introduced in Uganda during the colonial days as a replacement to Hut tax.

In Uganda, it was abolished about 15 years ago after pressure from politicians, who described it as ‘a primitive’ tax and badly collected despite its significance to the local government.
Its abolition is credited to Dr Kizza Besigye, who in 2001, while running for president said he will scrap it once elected in the top office.

Given its unpopularity then, thanks to its brutal collection methods, it endeared Dr Besigye to the electorate. In response, President Museveni declared it scrapped after sensing the impact it could have on his presidential bid.

In other East African countries, particularly Kenya and Tanzania, it was abolished much earlier before it caused as much brouhaha as it was the case here.

Civil societies’ take

Ugandan adults enjoy beer in Kampala. CSOs had proposed that government reinstates the graduated tax by charging Shs1,000 per every Ugandan above 18 years.

Apolot’s story appears corroborated by the findings of Civil Society Organisations (CSOs) urging the government to reinstate G.T.

Almost fifteen years after it was suspended, the civil societies are now saying it should be reintroduced to cure funding gaps the local government is grappling with to deliver services to the population as well as inculcate some sense of responsibility among the citizens.

Speaking to journalists in a news conference last week, the South and Eastern African Trade Information and Negotiations Institute-Uganda (SEATINI-U), country director, Jane Nalunga, said women, especially those in the countryside, want the G.T reinstated immediately.

She said: “We have heard people in villages, especially the women, calling for reintroduction of graduated tax. They say that will compel men into working hard and spending their time productively instead of drinking or lazing around the whole day—doing nothing.”

She continued: “We can discuss the collection methods. We believe it can be better. We don’t want to see our people being dehumanized; however, we believe that that tax should be reinstituted.”

Speaking in in the same news conference, where a group of eight civil society were stating their position on tax revenue measures for the financial year 2016/17 the Civil Society Budget Advocacy Group (CSBAG) coordinator, Julius Mukunda, said after their interaction with local government officials, it is became obvious that majority of them want it reinstated.

Speaking on behalf of the CSOs, the two—Nalunga and Mukunda, said the G.T. is not only progressive because it is imposed on how much one earns as opposed to a uniform levy enforced on consumptive products where the rich and the poor pay equally.
They also argued that G.T. is will provoke a sense of responsibility and the much-needed demand for accountability from the government.

Supporting the CSOs position is Charles Opolot, the director policy for a think tank, called Public Policy Society of Uganda.
He argues that the G.T should have been reintroduced much earlier, with proper collection methods. He said the payment can be spread across the financial year so that everybody can pay easily and respectfully.

According to Opolot, unlike other taxes, the G.T gives legitimacy and a sense of belonging to a citizen. He said paying taxes is an obligation that has to be enforced because world over, it has never been a fancy subject—people don’t like paying it.

What analysts say

Mulago Women’s Referral Hospital, a component of Mulago National Referral Hospital, under construction. Tax collections go towards improving services in various sectors of the economy including health. Photo by Stephen Wandera.

“I do not agree due to technical, social, political and economic reasons. It should be dropped 1,000 metres underground,” Fred Muhumuza, School of Economics, Makerere University, said when asked whether G.T should be reinstated.

He continued: “Technically, it is not easy to collect the tax and it tends to cause harsh means of enforcement due to inability to be collected at convenient times. Convenience is a key canon of any good tax. Most rural dwellers have incomes pegged to seasons and G-tax is for a given period.”
According to Muhumuza, better taxes are already in place by way of consumption.

He said: “Just recall how government abolished car licence tax and instead put it on consumption of fuel. That is a more efficient way of collecting tax than ‘hunting’ for irregular incomes.”

Politically, the timing is bad. He said it cannot be removed now as it could lend some political capital to Dr Besigye, the man who prompted the suspension of the direct tax—G.T.

Economically, he said, people are poor and the link that paying such a tax will improve their plight would be far-fetched.
He also dismissed the view that once the people pay the tax, they will push for more accountability. He said it does not work that way. He argues that people are already paying taxes and accountability is not duly forthcoming.

Interviewed for this article, Kanyomozi Yonasani Bankobeza, a consultant in resource development and management and an economist, said he is opposed to the reinstatement of G.T.
Unlike the CSOs who consider this a progressive tax although it is a direct levy, the veteran politician, described the defunct G.T. as “very regressive.”

“Its collection method was so bad. There are many ways for government to be accountable or held to account. There are people with 1,000 cows or more.This is person who should be taxed, including religious fanatics who make a lot of money from poor worshippers.”

He continued: “With graduated tax, a poor man pays the same as the rich man and this is something people don’t seem to know. Beside, this is a primitive and colonial tax that should be discarded.”

Policy makers and implementers have their say
Local government is largely funded by government and donors. Before the G.T was abolished, its total collection was no more than Shs100 billion. Even with government and external support, the quality and quantity of services delivered by the local government is still wanting.

Irrespective of that, discussions around reinstating G.T. have remained a touchy subject. The principal economist, local Government Finance Commission, Johnson Gumisiriza, said: “G.T has a historical trauma. Its reinstatement will be resented.”
According to Gumisiriza, local service tax would rather be expanded than reintroducing the G.T. The other alternative is having it make a comeback under a different name with proper collection modalities but not as G.T.

Speaking in an interview last week, the Secretary to the treasury, Mr Keith Muhakanizi, said this is a matter that can be decided by the politicians and not the technical wing of the government.
Commissioner for customs, Dickson Kateshumbwa, standing in for the Uganda Revenue Authority Commissioner, Doris Akol, said, the tax agency has nothing to do with the G.T. as it is entirely a matter of local government, right from the time it was suspended.

Government declaration
The government has taken a decision not to reintroduce the G.T, according to the finance minister, Matia Kasaija.

Speaking in a phone interview last week, Mr Kasaija said: “We decided not to reintroduce it because we get so little from it and we thought it does not warrant the hassle that comes with its collection.”

He continued: “We think we can resort to other alternatives that do not hurt people. As you may know, people used to be tied (kandoya) with ropes for not paying the tax. So, we shall use methods that people won’t know that we are taxing them—indirect taxes.”

Dollar supply drops. In the 2015/2016 Budget, government provided Shs2.2 trillion for the Local Government activities. Given the number of districts, which is slightly beyond 110, that sum of money is below the district budget requirements.

The numbers

Age at which Ugandans were required to pay graduated tax.

Shs100 billion
Total collection of graduated tax before it was abolished.