As government grapples with how to raise more revenue to run its business, reduce donor dependence and invest in the public services that allow society and the economy to thrive, a survey has revealed that most Ugandans do not think current tax rates are fair and even fewer will pay taxes without enforcement.
Twaweza’s Sauti za Wananchi, a nationally-representative, high-frequency mobile phone panel survey conducted in March was based on the government’s Domestic Revenue Mobilisation Strategy (DRMS, 2019-2024), which looks at taxation as government’s ways of creating an environment that enables citizens to form and run businesses – to access capital, to operate without undue obstacles, to find markets – is central to stimulating economic growth.
In a preamble the survey report states that government needs to establish a tax environment that generates sufficient revenue in a fair way that is understood by citizens. The report further identifies the importance of taxation as it plays an important function as a basis for accountability since citizens contribute part of their incomes to national efforts. Because of this, citizens are more likely to ask for better services and a voice in how public funds are used.
The survey comes in the wake of government tabling before Parliament the Tax (Amendment) Bills containing proposed tax measures for the 2023/2024 Financial Year. According to government, the objective is to broaden the tax base by bringing income that was previously untaxed/(or exempt) into scope, providing clarity in taxation of certain tax provisions that had ambiguity as well as introducing administrative measures to encourage and enhance tax compliance.
If passed into law, Ugandan taxpayers will by July 1 face a number of new taxes. Tax body, Uganda Revenue Authority (URA), expects to collect Shs.29 trillion from domestic tax revenue in the stated financial year from both existing and new tax policy measures, according to Juliet Najjinda, the senior manager of Indirect taxes at Price WaterHouseCoopers Ltd, the international assurance, Tax and Advisory services company.
On the brighter side, however, in the proposed amendments, the government is eyeing tax sources that are out of the range of the average Ugandan’s source of income. The Twaweza’s Sauti za Wananchi report indicates that just under half of Ugandans have owned a business at some point in the past five years, and among those still operating, the most common type is agriculture. It further indicates that the main types of businesses owned by citizens in the last five years are agricultural (16%), wholesale/retail trade (9%), hawking (6%), other small scale services such as salons (5%), brewing and selling alcohol (3%) and trade in live animals (3%). Further more, the survey indicates that Among citizens’ who own businesses that are operating currently, the most common type is agricultural (32% as main business, 3% as a secondary business). This is followed by wholesale/ retail trade (18%), hawking (13%) and small services (11%). The survey indicates that 45% of businesses currently operating began operating in the past three years, including 8% in the past year and 37% in the previous 1-3 years. Less than three out of ten (25%) began 4-7 years ago, one out of ten began 8-10 years ago, and two out of ten (21%) began more than ten years ago.
But unlike the findings of Twaweza, the eyes of the taxman are elsewhere as government last year implemented plans to begin collecting Value Added Tax (“VAT”) on digital services provided by non-residents to private individuals who are not registered for VAT in Uganda. Companies such as Facebook, Zoom and Netflix begun charging VAT on digital services provided in Uganda on July 1, 2022. However, because VAT is a consumption tax, the tax is currently borne by Ugandan users of such digital services.
The Income Tax (Amendment) Bill, 2023 which is before Parliament is now proposing to introduce a separate direct tax in form of digital services tax (DST) on such services. This will be charged on the gross revenue that nonresident digital service providers make in Uganda at a rate of 5 percent.
Previous attempts by government to levy tax on social media fell flat. In May 2018, a daily Shs200 tax levy on social media was approved by Parliament, government had hoped to collect at least Shs284 billion. However the citizens rejected the tax, turning to the use of virtual private networks (VPNs). The social media tax was eventually scrapped.
Tax evasion in Uganda is not new. The Survey indicates that Three out of 10 Ugandans (30%) say they think that the level of tax evasion in Uganda is high, and a further 14% say it is at a medium level. This compares to one out of ten (10%) who say they think tax evasion is very rare and 26% who say the level is low.
The survey further indicates that 51% of Ugandans agree that the government is capable of identifying and prosecuting tax evaders, compared to 31% who think it is not capable. “Further, a low (and declining) number of citizens (13%, down from 33% in 2019) think that current tax rates are fair.
