Government should increase tax base instead of increasing rates, experts say in report
KAMPALA, Uganda
Up to 55% of Ugandans who opened businesses in the past five years had to close them due to coronavirus disruptions, declining demand, and heavy taxation, according to a report Tuesday.
The report by Twaweza, an NGO, Uganda Revenue Authority and the Tax Justice Alliance Uganda said businesses that are still operating are either declining or have had their growth stunted.
“The number of enterprises that are declining are bigger than the number of enterprises that are improving and those who failed won’t bounce back to business,” said Francis Kabuye, the head of the policy and advocacy federation of small- and medium-sized enterprises (SMEs).
“I would urge the government to think about the provision of capital. In the past five years, very few businesses have been created because of the high cost of capital, high cost of production and starting up a business,” he said in the report.
Isaac Arinaitwe from the Tax Policy Division of the Finance Ministry said the agency has availed money through the Uganda Development Bank for SMEs but it is not being accessed because of complex processes.
The majority of the businesses are small, opened in the last three years and employ between one and 11 people, according to the report.
Marie Nanyanzi, senior program officer at Twaweza, said 67% of business operators said taxation rates are not fair amid a lack of transparency regarding collection.
Thirty percent of respondents said they are willing to evade taxes if given a chance. The reason given is that they feel the rates are too high and a sense that tax revenues are not spent efficiently by the government.
“There is growing support for taxation in principle, recognition that paying tax is a civic duty, compared to the 30 percent who say they would avoid tax if they could,” said Nanyanzi.
Robert Ssuna, a tax policy analyst and coordinator at the Tax Justice Alliance Uganda, said the government should increase the tax base instead of increasing rates.
“Sometimes we consider that the number of people on the tax register is the tax base and yet it is the number of economic activities from which you generate tax,” he said.
He added that the motivation to pay taxes is also about service delivery and not necessarily tax rates.
The tax revenue to GDP ratio has increased from 10.2% during the 2014 – 2015 fiscal year in Uganda to 12.9% in 2018 – 2019 and a year-to-year average growth rate of 15.7%.
