Taxes in Uganda: A Nightmare for the low-income earner

Based on the recently published National Budget Framework paper, Uganda's national budget for the Financial Year (FY) 2018/19 is anticipated to be UGX 21.9 trillion. In order to finance the above budget, the Uganda Revenue Authority (URA) faces an uphill task to increase total domestic revenue by 9 percent from UGX 14.3 trillion in FY 2017/18 to UGX 15.6 trillion in FY 2018/19.

Despite, persistent growth in the net URA collections over the last decade, in the recent past, the tax body has consistently fallen short of its ambitious revenue targets. Specifically, URA registered a shortfall of UGX 458 billion, UGX 404 billion, UGX 139 billion and UGX 503 billion for the 2016/17, 2015/16, 2014/15 and 2013/14 respectively.

Although these deficits appear small in relation to the respective annual set targets, their impact in terms of what public services could have been financed is huge. For instance, the UGX 458 billion revenue deficit registered in 2016/17 was slightly more than half, the budget allocated to agricultural sector, a sector that supports livelihood for majority of the population.

In addition, a forecast of macro-economic environment in 2018/19 does not seem to paint a better picture to support URA's efforts to hit the anticipated revenue targets. For example, in 2018/19, Uganda's economy is projected to grow at 5.5 percent, however, past trends reveal that in the last five years, our economy has only managed to achieve an annual average growth rate of 4.5 percent.

Additionally, the continued civil unrest in South Sudan and uncertain weather conditions are likely to subdue exports while the commercial banks are cagey about expanding private domestic credit. Meanwhile, continued delays in the completion of public infrastructure investments is likely to prevent the short term productivity gains that could be realised from enhanced infrastructure.

Furthermore, the accumulation of domestic government arrears will likely worsen private investment and raise non-performing loans. In addition, there are unresolved civil servants' demands like teachers and medical workers for salary enhancements expected to cost UGX 1.8 trillion in 2018/19 and UGX 3.6 trillion over the next four years.

All the above suggest that the tax body, (URA), has to come up with innovative measures to boost both domestic tax and non-tax revenue in order to finance the national budget. However, in doing so, the financial status of the tax payers has to be considered. Otherwise, a well-intended move by URA could result in dire consequences for the low-income earner and subsequently Uganda's economy.

Evidence of this, is the implementation of Over the Top Tax (OTT) on all social media platforms and the 1 percent tax on all Mobile Money transactions which took effect earlier this week on 1st July 2018. Most Ugandans have responded with an uproar against the OTT and consequently resorted to using "VPNs" as a sign of protest.

However, Ugandans can only boycott Mobile Money services as a means of avoiding the taxes which is almost impossible today. This is due to the convenience associated with mobile transactions, like sending money to the village, paying utility bills, accessing bank accounts, etc. A number of youth, including mobile money agents, who earn their daily bread from subsequent transactions cannot help but take to the streets since they are among those directly feeling the pinch of these taxes.

As of 4th July, 2018, there has been talk that the Mobile money tax was initially supposed to be 0.5 percent and not 1 percent. However, as for the OTT (Social media tax) there's talk of changing the means of its payment so that its paid indirectly by the user. Apparently, discussions are on-going between URA and the telecom companies in order to include OTT on the cost of internet data bundles.

With costs of living increasing by the day and unemployment rates at a record high, the introduction of more taxes like OTT and Mobile money tax can only be a nightmare to the poor and low-income earners in Uganda.

Thanks for reading, until next time...

Statistics and excerpts obtained from an Economic Policy Research Centre (EPRC) paper.