What you need to know:
“Madam Speaker, no new taxes will be introduced in Financial Year 2022/23.”
That is arguably the only statement from the Budget speech that Ugandans have committed to memory. Not only have there been no new taxes introduced but there has also been no major increase in the rates for existing taxes. This decision is wise because while it does not result in any savings, it maintains the status quo and prevents an already bad situation from getting worse.
Since 2020, the economy has suffered setbacks—first from the lockdown that affected key sectors. Subsequently, when the economy reopened, there were expectations that it would enjoy speedy recovery. Alas, few anticipated that a conflict in Ukraine would send commodity prices skyrocketing, cause rising inflation and interest rates. If the fuel pump prices are anything to go by, things will only get worse before they get better. Therefore, the move not to introduce new taxes is a welcome reprieve.
You would be forgiven for thinking that this would mean less ambitious domestic revenue mobilisation targets. The URA’s revenue collection target has gone up by 14 percent in Financial Year 2022/23 to Shs25.5t (and up by 18.5 percent based on FY 2021/22 actual performance). The government is also seeking a year-on-year increase of the revenue-to-GDP ratio by 0.8 percent from the current base of 13.2 percent in FY 2022/23 and eventually to 18 percent over the medium term.
The tax to GDP ratio is a key indicator of a nation’s ability to support its budgetary demands from domestic resources. With our national debt level hovering close to the 50 percent of GDP mark, there is definitely pressure to increase tax collection. But where is the money going to come from?
The immediate task is to support economic growth through measures that will generate additional taxable economic activities, create employment and increase aggregate demand for goods and services in the short to medium term. Therefore, greater resource allocation to vital yet struggling sectors such as manufacturing would have paid off dividends faster.
Similarly, a solution to the rising fuel costs that could potentially risk energy rationing and ultimately a recession would have been a welcome surprise. However, the budget allocations are not that different from the usual despite the fact that the times are unusual. For example, infrastructure spending, while popular with politicians because its results are visible to voters, may not have immediate stimulus on the economy due to several factors, including implementation lag.
Key to improving revenue collection is the automation of government’s processes, which is improving efficiency in tax collection and enhancing compliance. The implementation by URA of the electronic fiscal reporting and invoicing system is an example of automation that is cutting red tape and generating efficiencies that will enhance revenue collection.
Widening the tax base to capture the informal sector into the tax bracket must be a priority. Recent efforts aimed at widening the tax base include the introduction of digital tax stamps, among others. More can, however, be done to target highly consumed yet untaxed commodities such as those in the informal alcoholic beverages sector. It is important to build trust with taxpayers and providing proof that taxes are well spent. This is a critical part in building a social contract with citizens to pay taxes. Ugandans need to trust the government and have the assurance that the benefits from taxes will trickle down to the majority.
This requires transparency and fiscal discipline. While it is nice to talk about limiting supplementary expenditure it is even better to have honest conversations and some action around cutting the waste that Ugandans sees daily such as the long convoy of vehicles for ministers and the unchecked corruption while health centres are out of stock of medicines.
The author Crystal Kabajwara is a business advisor with PwC Uganda.