CSO CONCERNS ON DOMESTIC REVENUE MOBILIZATION
“Re-shaping domestic revenue mobilization strategy”
- Introduction: We the Civil Society Organizations under the Umbrella Civil Society Budget Advocacy Group (CSBAG) together with Tax Justice Alliance Uganda are gathered here to share views domestic revenue mobilization strategy that will deliver adequate services to Ugandans.
- Uganda has developed a Domestic Revenue Mobilization Strategy (DRMS) with key drivers including; –
- Encouraging greater self-reliance in financing economic development in Uganda and a stronger sense of ownership of the policy levers.
- Generating constructive and inclusive debate within Uganda about the shape and balance of the tax system
- Building consensus around an approach to taxation that represents a better fit with Uganda’s aspirations, society, and ways of doing business
- Sharpen the focus on improving the efficiency of tax administration and collection processes within government
- Evidence the government’s commitment to leaving no space in the administration and collection of taxes for corrupt practices among others.
- By developing and henceforth implementing the DRMS, Uganda will take more responsibility for financing its own development. We will need to however strengthen accountability for the implementation of the required policy changes and the administration of the revenue collection process so as to realize growth in revenues.
- Rolling out the Travel Assessment System at Entebbe International Airport.
We commend URA for rolling out the Travel Assessment System at Entebbe Airport for checking drug smuggling, wildlife tracking, terrorism and customs violation as a way of enhancing surveillance on suspicious customs transactions. We believe this is a good initiative towards addressing the leakages in tax revenue collections which was being lost.
- We commend URA for having done a good by registering significant strides in domestic revenue mobilization through implementing several reforms: The reforms include Tax Payers Expansion Project (TREP), Digitalization of tax collection, supporting collecting local revenue, enhancing tax compliance and trying hard to expand Uganda’s tax base. Fore example the tax revenue for the last four years were as follows;
|Financial Year||Targets (UGX Bn)||Collections(UGX Bn)|
|2019/20||20,344.13||9,042.01 (July-Dec 2019)|
- URA Revenue collection performance: During the half year period July to December 2019, URA was projected to collect UGX 9,739.39 billion however, URA collected net revenue of UGX 9,042.01 billion thus falling short by UGX 697.38 billion. The shortfall has implications on the budget financing arrangements which may affect service delivery to disadvantage all Ugandans.
- Unrealistic revenue targets: The revenue targets have been on upward trend for all the previous years despite limited efforts to nurture and grow businesses/entrepreneurship by government. For example, FY2018/19 was UGX 16,358.75 billion and increased by 24.4% to UGX 20,344.13 billion FY 2019/2020 or an increment of approximately 1.4% Tax to GDP ratio. These revenue targets that are in most cases not attainable, affect proper planning and budgeting
CSO Concerns on domestic revenue mobilization and revenue performance
Despite the above positive developments, in expanding revenue collection, we CSOs gathered here have observed the following concerns that we would like Government to pay attention for purposes on enhancing domestic revenue mobilization. The key reasons for underperformance in revenue collection and suggested measures include;
- Under performance of VAT
URA underperformed in VAT attributed to a lower than expected outturn of UGX 92.02 billion on phone talk time, UGX 38.27 billion on sugar, UGX 28.62 billion on beer and UGX 41.32 billion from the wholesale and retail trade. The commissioner general attributed to many people using internet calls as opposed to phone talk time. The Value Added Tax (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 an indirect tax be imposed on data subscription per unit consumption other than the direct tax such as OTT
- 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. Overall, the policy measures yielded total revenue gain of UGX 52.41 billion by the end of December 2019 against an annual target of UGX 847.00 billion. This affected domestic tax collections leading to a deficit of UGX 38.60 on Spirits and waragi and UGX 37.93 billion on rental taxes. URA projected to collect UGX 49.46 billion from withholding VAT agents after gazetting but only collected UGX 2.98billion. The delays could have been as a result of limited stakeholder engagements on how smooth implementation could be managed. 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. Going forward 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.
- The impact of tax incentives and exemptions
URA reported that the mmajority of the policies and legislative changes introduced for this financial year were revenue reducing and erosion on the existing tax base, especially the corporation income tax base. Examples include changes made to Section 21(1) (ae), (af), (ag) of the Income Tax Act introducing income tax exemptions for selected strategic investments. As a result of this measure, URA anticipates to fore go about UGX 500 billion tax revenue in this financial year. Also, during the period July to December 2019, the tax waiver on imported brown husked rice led to revenue foregone of $ 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.
- Iimproving Trend of Import Substitution
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.
- The impact of economic integration (EAC & COMESA) declining terms of trade in international markets.
URA reported an increase in the volume of goods from EAC and COMESA member states by 44.2% at a value of UGX 154 billion and the majority of these imported products include; semi-finished gold, sorghum, flavours, pampers, cement clinkers, sugar or industrial for use, sanitary towels, soap and waste & scrap. The implementation of EAC & COMESA comes along with foregone revenue in the short run hence affecting collections. Despite the impressive performance reports as Ugandans we get fears when reports from Kenya show that Ugandan milk has been stopped from accessing Kenyan markets yet we have a number of Kenya products in Ugandan markets. Additionally, Terms of Trade in Uganda decreased to 124.08 points in December from 127.78 points in November of 2019. Uganda Terms of Trade. Efforts to enhance the value of what we export as 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.
- Payment of Royalties in the Mining Sub-Sector
According to OAG report of 2019, during the year the Ministry collected UGX. 10,503,398,902 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 UGX. 70,193,258,898, 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.
- The MEMD has not set up weighbridges on the major routes where bulky and expensive minerals such as pozzolona, limestone and base metals are transported. and
- 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.
As CSOs 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.
- Tax refunds made to tax payers with tax arrears
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 UGX 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.
Enhancing implementation of tax administrative efficiency measures and improved political will to support tax measures will effectively eliminate revenue shortfalls and tighten revenue leakage and achieve much needed revenue efficiencies, The key initiatives being implemented by URA such as influence taxpayers’ compliance, behaviour/culture, as well as efforts to account to the public on how their revenue is being utilized is a good move to improve the positive tax culture among Ugandans. We hope that, Government can address these CSO concerns so as to achieve effective domestic revenue mobilization to finance our budget domestically and reduce the unwavering burden on external debt.
……………..because every shilling counts!!……………………..