Kampala, Uganda | URN | The Uganda Revenue Authority (URA) revenue collection targets for the next three years are far from achievable, with the tax body facing several challenges according to officials.
This is a repeat of what has been happening for most of the previous short and midterm strategies that URA has set out to achieve.
The Ministry of Finance, Planning and Economic Development gives the URA annual targets which form part of the wider midterm strategies of three to five years.
In the current five-year Domestic Revenue Mobilisation Strategy, the government set a target for URA to collect revenues amounting to between 16 and 18% of the Gross Domestic Product.
Measuring the revenue collection against the size of the economy helps policy makers, lenders and development partners to decide whether the government is collecting enough revenues compared to its size.
Currently, the tax revenue to GDP ratio stands at 12.9%, far below the EAC and the African averages. For example, Rwanda Revenue Authority collects 16% and Kenya Revenue Authority raises 18% of the country’s GDP.
The lower the ratio, the less a country’s creditworthiness because it means it is or is likely to start borrowing to service loans, and therefore becoming less able to pay off the credits.
The 2021/2022 fiscal year is the midway year of the strategy that ends 2023/24. URA acting Manager Corporate Affairs, Michael Masembe says it is very clear the tax collection target set in the strategy will not be achieved.
“Even the international average growth of the Tax-to-GDP ratio is 0.5% per year and even if URA achieved this, still, the target in the strategy would not be met. I sincerely think the Ministry of Finance should revise this target,” he advises.
Indeed, the government was forced to revise the revenue collection target for this year from 21.8 trillion which would be 14.3 percent of the GDP, to 19.6 trillion. This year’s collections have largely been affected by the fallout from the coronavirus containment measures which greatly affected economic activities especially in the first half of the financial year.
According to URA, by end of April, they had collected 15.6 trillion, and needed either 6 trillion to meet the original target, or 4 trillion for the revised target. In the previous year, the tax body failed to meet the target by 3.5 trillion.
According to the four-year URA Corporate Plan 2015/16, there was need to collect an average of 22 trillion per year if the target was to be met, and if the URA was able to fund the National Development Plan 2.
Instead in the first year, only 11.4 trillion was collected, half of the required average, and by the end of the strategy, collections had averaged 16 trillion. Masembe says the tax body is facing many challenges including the changing face of illicit trade or smuggling, even with the introduction of several measures.
Today, several border points have scanners that detect traders who attempt to mis-declare goods.
URA has also recently started to enforce the Digital Tax Stamp system to ensure every targeted product on the market has a stamp for easy verification for tax compliance.
Other measures include the Electronic Fiscal Receipting System which ensures that the transactions at a point of sale are recorded and the tax obligations remitted directly electronically to URA.
The electronic cargo tracking system has also improved on the cargo surveillance by URA and its regional counterparts to tame smuggling and dumping of goods.
Masembe also calls on the government to fast-track the renegotiation of Double Taxation Agreements with especially developed countries and tax safe havens, saying that it is actually Uganda with loses in most of these cases.
URA also is opposed to tax incentives given to investors. “These only help deny the government important due revenues, while there is no evidence that they actually attract investors.”
The other challenge is the taxation of the digital business.
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“It is difficult to tell how the money moves and how much, even if you know the people involved in the trade. For example, do you go for Jumia, or for MTN?,” he wonders, advising that all the players along the system in e-commerce have to be brought together for tax purposes.
The URA has also found problems with the taxation of donor-funded projects, where the donors are opposed to paying taxes to the Uganda government because there is a donation. “The donors tell the recipient that tax is not their obligation and that it is something that should be resolved locally.
Yet sometimes the recipients of the donation might not have the money,” says Masembe.
The URA is also calling for a quick enforcement of a dispute resolution mechanism for the region because court cases take too long and in the end the value of taxes is lost.