Uganda’s tax system is deepening rather than broadening

A cargo truck passes through a mobile scanner at Gatuna border post on June 18, 2019. Government has had challenges with achieving effective tax collection with shortfalls blamed on an increase in leakages created by defective methods. PHOTO | ROBERT MUHEREZA

What you need to know:

  • As Uganda is looking at increasing the lifeblood “tax revenue,” the focus should be on “broadening not deepening.”

Taxes are the nation’s lifeblood through which government agencies continue to operate and which the State discharges its functions for the welfare of its constituents.” This was echoed in the classic 1988 case of CIR vs Algue states that “without taxes, the government would be paralyzed for lack of the motive power to activate and operate it.”

Tax is a “price we pay for a civilized society” (Oliver Wendell Holmes Jr.). Some taxpayers view it as a “tribute to Leviathan” a pure involuntary extraction from those engaged in economic production to those who control coercive power producing no reciprocal benefit.

An example of deepening is in the Uganda Rental Income Tax. In 2019/20, a resident individual for the year of income was charged to tax at the rate of 20 percent of the chargeable income in access to the tax-free allowance or threshold of Shs 2,820,000 per annum.

In 2021/22 a resident individual for the year of income was charged tax at the rate of 30 percent of the chargeable income without a threshold but at a total allowable expenses of 75 percent. In 2022/23, according to the proposed Income-Tax Amendment Bill 2022, the tax rate applicable to an individual for the purposes of section 6 (2) is 12 percent of the gross rental income.”

That means that if a Resident Individual X earns Shs. 30,000,000, in 2019/20 he/she Rental Tax Payable was Shs 4,236,600 (provided not deducting interest on the mortgage), in 2021/22 it was Shs2,250,000 and if the bill passes as it is at 12 percent the resident individual will be paying Shs3,600,000, an increment of Shs 1, 350,000 if you compare FY 2021/22 and FY2022/23.

In addition to that, the resident individual must pay the Property Rate depending on the jurisdiction, and the Rateable Value of his/her property, for instance, in Kampala, the Property Rate is 6 percent. The “tribute to Leviathan” is in the failure of the local authorities to allow the Property Owner’s Association to oversee the provision and delivery of service out of 75 percent as prescribed by the Local Government (Rating) Act 2005, Section 37, subsection 1, 2, 3, and 4.

As Uganda is looking at increasing the lifeblood “tax revenue,” the focus should be on “broadening not deepening”;

•Policymakers should broaden the base by repealing tax preferences.
•Curbing Illicit Financial Flows where Uganda is losing over Shs.2 trillion annually, and
•Job creation for Pay As You Earn (PAYE), and, increase on consumption taxes as many Ugandans will have purchasing power hence checking on inequality.                                        

Aloysious Kittengo, [email protected]                    

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