Why we must all pay our fair share of taxes

At this critical time when developing countries like Uganda urgently need resources to address the climate crisis and finance the much-needed social services and welfare programmes like healthcare, education, social protection and infrastructure, effective, fair and inclusive taxation is more important than ever. Beyond mobilising sufficient revenue, effective taxation is an essential component of the fulfilment of the social contract, curbing income inequality and an important step towards building a fairer and more inclusive future for all.

While challenges like tax evasion and avoidance still persist, we cannot abandon our obligation to pay taxes. As has been said, “Tax is the glue in the social contract and the price we pay for civilisation.”

Tax is a social act – a reflection of our belief in a better society, and a contribution to it.  Similarly, the need for everyone to pay their fair share of taxes to raise sufficient revenue and build an economy that works for all has also increasingly come to the fore and has become a major point of debate.

Therefore, a more progressive tax system where everyone contributes proportionally to their income is important.

To improve the current tax system, the Ministry of Finance, Planning and Economic Development in Uganda is seeking public input into the proposed tax policy for the upcoming Financial Year (FY 2024/25). This is an opportune moment to amplify our concerns and advocate for a fairer and more inclusive and progressive tax system.

Over the years, Civil Society Organisations (CSOs) such as the Tax Justice Alliance Uganda have successfully advocated for progressive tax measures where government has, among others, developed the tax expenditure governance framework and embarked on reviewing the harmful tax incentives and exemptions. In FY 2023/24, Uganda introduced a digital service tax targeting non-resident companies such as Twitter, Amazon and Netflix profiting from Uganda’s increasing digital space. However, although the country is making strides, there is still need to fast track and address some of the challenges which are still curtailing mobilisation of sufficient revenue. The case of Bujagali Energy Limited (BEL) serves as a good example in the broader conversation about tax justice and how revenue could be foregone. While we acknowledge the potential benefits of the project, it’s crucial to analyse the benefits and associated costs.

Last year, an additional one-year tax exemption was granted to BEL to allow an adhoc committee of Parliament to assess its performance. Previously, the committee’s findings revealed that from 2018 to 2021, BEL’s declared exempt income resulted in a significant loss of corporate income tax (CIT) exceeding Shs388.7 billion. This loss in revenue, if it does not outweigh the benefits accrued from the tax incentive, has the potential to contribute to more funds allocated to cater for the unfunded priorities in the critical social sectors like education and health.

Despite this exemption, Uganda’s electrification rate remains low at 24 percent. This low rate can be attributed to numerous factors, including high tariff costs for consumers due to capacity charges and insufficient transmission lines. While Bujagali has contributed to reducing blackouts and lowering overall tariff costs, the current rate of US cents 8.49 per kWh remains higher than the expected post-exemption rate of US cents 6.55 per kWh.

The adhoc committee’s observation, highlighting that even with the 30 percent CIT, the tariff could still be lower than the current rate, further emphasises the need for deeper analysis on the decision to be made by government. A thorough investigation is crucial to understand why the expected tariff reduction was not achieved and to assess the true impact of the tax exemption on electricity costs and national development.

That said, it is important to note that building a robust and equitable tax system is not solely the government’s responsibility; it demands on active participation from every citizen. This responsibility does not only fulfil our individual obligation to pay taxes but also engaging in constructive dialogue, demanding accountability, and advocating for reform. We can start by educating ourselves on tax policies, identifying interested parties and fostering collaborations, participating in public consultations, and holding duty bearers accountable.

Ms Regina Navuga,  Tax Policy Analyst, SEATINI Uganda,                        [email protected]