At the June 2016 budget reading, Uganda Revenue Authority was tasked with adding a whopping Ugx13trillion to the government coffers. Doris Akol, the Uganda Revenue Authority (URA) Commissioner General finds herself between a rock and hard place.
At one side is a tough economy with companies that need financial bailouts and on the other side is a government that is desperate for tax money to finance ambitious infrastructure projects.
The URA collected net tax revenue worth Ugx11.23 trillion in the 2015/16 financial year, posting Ugx1.5 trillion growth compared to the same period last financial year. Despite the annual growth of 15.6%, the tax collections were Ugx405 billion shy of targets.
Domestic taxes of Ugx6.4 trillion performed at 95.63% as corporate tax, Value Added Tax (VAT), Pay As You Earn (PAYE) and Local Excise Duty performed below targets. International trade contributed taxes contributed Ugx4.8 trillion performing at 97.27% as VAT at importation, import duty also performed below target with the exception of petroleum duty.
There has been a decline in revenue growth rate in FY 2015/16 compared to that of last year by about 5 percentage points due to strained macroeconomic environment characterized by lower economic growth of 4.6% from 5%, an average 14.2% depreciation of the shilling to the dollar from a projected outturn of 3,009 to 3,435.95.
According to Bank of Uganda statistics, the shilling depreciated by 25% in 2015 alone; the shilling is estimated to have declined by 32% cumulatively to June 2016. In a statement, URA noted that there was lower than anticipated fuel volume growth of 7% against the projected 9.2% growth in 2015/16.
There was a decline in non-fuel import value in USD of 7.6% against an anticipated growth of 8.4%. At the same time, headline inflation growth was higher at 7.6% than had been projected at 6.6%.
The exchange rate developments during the FY 2015/16 had a net negative effect on international trade taxes where the benefits observed from the exchange rate gain were wiped out by the loss in customs value and fuel volumes. On the overall, there was a net loss in revenue of Ugx98.89 billion from international taxes.
“The paltry revenue gain in fuel is attributed to the front loading of fuel in June 2016 especially for petrol due to the policy rate increase on petroleum imports,” Akol said at a recent media briefing in July 2016.
She noted that URA’s budget was slashed by 10 percentage points during the FY 2015/16 compared to the last FY. As a result of this, the taxman experienced a funding gap of Ugx55.11billion, which caused vital projects not to be carried out.
Projects such as the digital tax stamps, Electronic Fiscal Devices (EFDs), Extending Electronic Cargo Track System (ECTS) to Mombasa, e-Tax interface with National ID to mention but a few where not carried out which affected collections according to Akol.
The elections factor coupled with a number of multiple public holidays during the FY 2015/16 further affected the revenue collections according to Akol. She also noted that reduced profitability in the financial sector characterized by depreciation of the shilling and a surge in Non-Performing Loans (NPLs) experienced by the banking sector affected led to a decline in corporate tax remittance of Ugx12 billion.
At the same time, Central Bank Rate etched up to 15 % in FY 2015/16 higher than 13 % in FY 2014/15 which sent up the average commercial lending rates to 24.5 % in FY 2015/16 against 21.6% in FY 2014/15. Growth in Private Sector Credit (PSC) also dropped to 8.7% in FY 2015/16 down from 20.2% in FY 2014/15.
The URA noted that there were reduced sales and production which led to a Ugx239.17 billion deficit in VAT. “During the FY 2015/16 low production was observed especially in sugar, cigarettes and soft drinks sub sectors compared to same period last financial year,” Akol said.
“Local production was low due to the increase in imported substitutes for domestically produced goods,” she added. Of the 21 sectors from which revenue is collected in Uganda, the top five performing sectors contributed approximately 80% of the total net collections.
Looking at the year to year growth rates, whole sale and retail sector posted a positive growth although it was very insignificant-whole sale and retail sector registered a less than 1 percentage points.
The manufacturing sector registered a decline of 64.9 percentage points, the financial and insurance sector registered a decline of 27 percentage points, the information and communication sector registered a decline of 10.29 percentage points, while the public administration and defense registered a decline of 2.15 percentage points.
Plans for 2016/17; personalized tax services
Akol pointed out that in order to meet the higher Ugx13 trillion targets for the FY 2016/17, URA has strengthened its enforcement team by launching a forensic audit that ascertains the extent of revenue loss. The taxman has increased its intelligence operations at all borders.
“We have developed a number of strategies to ensure that we surpass this target. We plan to offer personalized taxpayer services by consulting and deeply involving taxpayers in the designing of our processes, systems and products,” Akol said.
“This will ensure that services offered are based on a deeper understanding of the entire taxpayer experience and that the compliance burden on taxpayers to meet their obligation is reduced. We plan to implement specific and targeted taxpayer engagement programs,” she added.
She explained that specific sectors, industries, associations, authorities and institutions will be engaged to ensure the right information is given to the right people. Akol noted that URA intends to increase collaborations with government agencies and key partners to enable it deliver on its mandate.
“We will be interfacing with both the public and private sector to allow us access rapid, real-time data sharing, reduce the information burden on the taxpayer and increase compliance levels,” she said.
“We plan to cultivate a taxpaying culture through provision of reliable services, leadership development and building strategic partnerships. We appreciate that the journey to transform our economy to middle income status by year 2020 is not an easy one, but at the same time it is not impossible,” she added.
However analysts take this with a pinch of salt. As much as URA has made great strides in promoting tax inclusiveness, a lot of work remains to be done. Our analysts at Summit Consulting point to narrow tax base, a shrinking economy and corruption as issues to address