BY UGANDA VANGUARD
NTINDA – Civil society organizations have told government to revise its tax strategy to raise more revenue to finance Uganda’s national budget. Under the umbrella Civil Society Budget Advocacy Group (CSBAG), the nongovernmental organizations outline several avenues to raise more revenue to deliver adequate services to Ugandans.
The call comes at a time when the country is in revenue shortfall of about Shs600 billion.
“We want Uganda Revenue Authority (URA) and Ministry of Finance to get back to the table and look at these issues,” said Julius Mukunda, executive director, CSBAG.
“We would like government to pay attention for purposes on enhancing domestic revenue mobilization. URA underperformed in Value Added Tax (VAT) attributed to a lower than expected outturn of Shs92.02 billion on phone talk time, Shs38.27 billion on sugar, Shs28.62 billion on beer and Shs41.32 billion from the wholesale and retail trade,” he said.
The commissioner general attributed to many people using internet calls as opposed to phone talk time, Mukunda told journalists Sunday, February 16, 2020 at CSBAG office in Ntinda. The press briefing was also attended by officials from Uganda Debt Network (UDN), Seatin Uganda among others.
Mr Julius Kapwepwe, Program Director, UDN added, “The VAT on phone talk time was affected by the changes in user tastes where users prefer the use of data for communication through whatsApp, viber and facebook as opposed to direct calls using airtime. In order to enhance revenue mobilization, we also propose that a tax be imposed on internet use other than piece meal taxes such as OTT and mobile money tax that are regressive and are largely cause dead weight loss.”
He tributes the shortfall to delayed implementation of some tax administrative and policy measures.
“We note with concern that URA reported delayed implementation of planned policy and administrative measures that were targeted to start 1st July 2019 such as; Digital Tax Stamps (DTS), Electronic Fiscal Devices (EFD) and gazzetting of withholding VAT agents, rental tax rates and the implementation of a specialized rental income tax collection solution which did not take off. Specifically, digital tax stamps would stamp-out illicit production and fight counterfeiting, real time tax accounting & reconciliation for tax stamps and real time enforcement,” said Kapwepwe.
He further explained, “Overall, the policy measures yielded total revenue gain of Shs52.41 billion by the end of December 2019 against an annual target of Shs847.00 billion. This affected domestic tax collections leading to a deficit of Shs38.60 billion on spirits and waragi and Shs37.93 billion on rental taxes. URA projected to collect Shs49.46 billion from withholding VAT agents after gazetting but only collected Shs2.98billion. The delays could have been as a result of limited stakeholder engagements on how smooth implementation could be managed.”
Kapwepwe added, “Going forward, URA should always adequately consult and get a buy in before tax measures are rolled. We also note that URA initially got difficulties in getting budget approved by parliament which delayed some processes thus there’s limited political will for URA to collect all the taxes that are required. URA should always set aside time and resource to undertake adequate consultation to allow buy in from all key stakeholders. Political actors should also support domestic resource mobilization efforts.”
Regina Navuga, Program Officer, Seatin Uganda said during the period July to December 2019, the tax waiver on imported brown husked rice led to revenue foregone of US$ 5.8 million. Further, other policy measures that have led to revenues forgone include; steel billets, cement clinkers, ban on importation of cars above 15 years old among others. The unwarranted tax exemptions negatively impact on domestic revenue mobilization efforts and affect budget financing. Government through ministry of finance should be keen on scrutinizing tax exemptions and tax incentives and grant only tax exemptions that are not harmful to our economy.”
She also attributed the shortfall on many previously imported items in various sectors are currently being manufactured in the country like; tiles, steel products, cement, tile adhesives, cables, motor cycle tyres, household appliances e.g. flat irons, speakers, soap and detergents, cooking oil, biscuits, sugar, juices, cosmetics, among others.
“This has caused a shift in consumer behavior with preference for locally manufactured goods at the expense of imported ones. It should be noted that for the first time in history, Uganda had a surplus or favourable balance of trade with Kenya in the Financial Year 2017/18 of $122.7 million (exports of $ 628.4 million against imports of $505.7 million). Uganda also registered a record highest trade balance in East Africa of $413.8 million (Exports of $ 1,220.63 million against Imports of $806.77 million), in the same period. Whereas this is impressive for Uganda, URA should not register this as a challenge due to reduction of import taxes but should instead find ways of getting taxes by enforcing filing returns by the local producers in a manner that will not affect production and sustainability of the entities involved.”
She called for efforts to enhance the value of export. “Ugandans should be supported such that we get enough value from what we export and improve our terms of trade as well as checking what we import as a country.”
According to Office of the Auditor General (OAG) report of 2019, during the year the ministry collected Shs10,503,398,902 in respect of mining royalties, however, a review of reports from the Customs and Excise Department of Uganda Revenue Authority (URA) indicated that Government should have collected Shs70,193,258,898, in royalties, using the applicable rate of 5% from gold, tantalum and tungsten.
“The following weaknesses in the assessment of royalties are noted. The ministry relies on declarations from the mining companies in form of monthly production returns, which are not independently verified. There is no permanent presence of inspectors of mines from the ministry to confirm production figures declared which creates a potential risk of under declaration of production. Government has not set up weighbridges on the major routes where bulky and expensive minerals such as pozzolona, limestone and base metals are transported,” she said.
Navuga, further explained, “There is lack of coordination between the various government institutions, and the failure to share the collected data, causes the ministry’s inability to institute proper verification mechanisms. The Ministry attributed the above weaknesses to inadequate human resource in the inspection and monitoring division in addition to the limited budget. The failure to close gaps in the royalty assessment and collection processes may lead to loss of government revenue through under declaration of quantities and smuggling of minerals.”
She added, “As civil society we want to ask government to address all the weaknesses in the assessment and collection of royalties so that enough revenues are generated from our mineral resources.”
Regarding tax refunds made to tax payers with tax arrears, Ms Juliet Akello, Budget Policy Specialist, CSBAG noted, “Section 113 (1) of the Income Tax Act (ITA) requires the Commissioner General to only make a tax refund if she is satisfied that a taxpayer does not have any outstanding liability not in dispute. Contrary to this, the Auditor General’s report notes that some taxpayers were paid refunds when they still had outstanding tax obligations to the tune of Shs 2,085,861,790,860. This not only contravenes the law but also denies the government the much-needed revenue. This is one of the reasons that URA keeps getting shortfalls in revenue collection targets. It is important that the accounting officers establish the circumstances that lead to the irregular funds and take appropriate action to curb such anomalies especially by the Inspectorate of General Government.”