The moral economy of taxation corruption in Uganda

Mwambutsya Ndebesa

What you need to know:

  • This corruption coupled with incompetence of URA officials explains our underperformance as a country in terms of tax collection.
  • Corruption is killing more people in Uganda than the wars

One of the manifestations of the crisis of corruption in Uganda is in the tax regime. This tax corruption is in both the bureaucratic and political corruption forms.  

Uganda Revenue Authority collects only 13 percent of the ratio of GDP as tax. Actually compared to Kenya, Tanzania and Rwanda revenue authorities, URA is the worst performer in revenue collections. 
Countries in the developed world collect on average 34 percent of their GDP ratio. The irony is that Ugandans feel over taxed which partly is true. 
It is partly true because the tax regime in Uganda is flout with corruption and very very few bear the burden of taxes which is unfair and unjust.

The temptation is to blame poor tax collection on the incompetence and bureaucratic corruption of URA employees. Tax corruption goes beyond URA tax collectors. Corruption in Uganda is embedded in the moral economy of tax collection and governance policy in the country. Corruption is engrained in the political cultural system and has actually become normal.

Tax corruption in Uganda begins with what President Museveni has characterized as neo-colonial mentality or law in his brief virtual speech at the reading of the 2023/24 year budget. According to this inherited tax legal regime, tax avoidance is legal. What is illegal is tax evasion. When a potential tax payer is smart, takes advantage of some legal technicalities or colludes with the URA tax auditors who assist the taxpayers by alerting them of the weaknesses in the law then the taxpayer is not a criminal. He has only avoided the tax. Tax avoidance is legal in Ugandan law though of course it is immoral. Tax evasion is when one out rightly fails to pay tax but if you use tricks to avoid tax then that is legal.  

Many multinational and some domestic companies avoid paying tax in Uganda through tax tricks and it can be observed without one bothering to carry out an audit. As long as these companies falsify their accounts and balance their books according to tax laws then they do not pay taxes and many do not. How can a company declare ‘losses’ year in and year out for five years or more and therefore pay no taxes and yet it is thriving? Ordinarily a loss making company would have wound up. 

The fact that these companies which declare losses and therefore pay no taxes are thriving means they avoid tax payment through (bukujukuju) false accounting or collude with URA auditors to declare false losses. But the law says it is legal to avoid tax payment and these companies continue with business as usual. The right thing would be for the government to declare such companies bankrupt, close them or levy them a high flat rate that would be an incentive for such fraudulent companies to behave and produce the right accounts.

The most common political tax corruption in Uganda has been through the opaque system of tax incentives. Tax incentives in the form of tax holidays, tax exemptions, tax waivers, tax deductions etc have been selectively granted to some foreign and local investors. Tax incentives world over are used as a tool for creating incentives for well performing or strategic companies in the economy of a given country. How then does a tax incentive become a form of corruption in Uganda?
In Uganda tax incentives granting is not always based on economic logic but sometimes political logic. There are no clear guidelines to grant tax and other business incentives. There are no clear, known, formal mechanisms or policies or guidelines or protocols for accessing such incentives in form of taxes or loans or free land. 

Ordinarily such incentives should come out of a dialogue between the state and citizens such as the business sector. These incentives including tax incentives should be codified and one qualifies for such tax exemptions based on such known criteria.  

Any incentive based on selective and differential treatment of international and local investors which is not anchored in policy and law is based on patronage and therefore constitutes political corruption. Period.

Let’s take the example of Gold production and exports from Uganda to illustrate this taxation corruption. 
Parliament recently passed a gold taxation law but we are told it has not been implemented for some time. This was illegal and yet the government took no action to reign in illegality after the law had been passed and came into force. How could gold continue to be taxed outside the existing new law for some time?  

Two, where is all this gold mined in Uganda? If it is imported, are there documents to show this? If most of it is mined within Uganda how come the gold figures of the Directorate of Geological Survey and Mines do not tally with those of URA? 
Uganda as a country should stop normalizing gold smuggling because this also constitutes a form of corruption culture at a geopolitical and transnational level. 

Three, gold is now the biggest export earner for Uganda. How come it is not among the biggest taxpayers in Uganda?  
Of course there is rampant bureaucratic corruption by some URA tax officials. They collude with importers, investors, manufacturers, traders, employers, and real estate owners etc to undervalue goods and assets and under declare taxes. 

This corruption coupled with incompetence of URA officials explains our underperformance as a country in terms of tax collection.
As some intellectual has sarcastically commented, corruption has become grease to oil the incompetence of the bureaucrats so that they function effectively.  Maybe Uganda will be unique to undergo socio-economic transformation through the route of political patronage and corruption. Maybe that is Uganda’s exceptionalism. 

Otherwise corruption has become a pandemic and in the analysis of renowned Kenyan law Professor PLO Lumumba, corruption is killing more people in Uganda than the wars. So there is a sense in which those practicing corruption whether of the bureaucratic or political type are murderers.

Authored by Mwambutsya Ndebesa,
Makerere University.