PM Mbabazi rules out Graduated Tax reinstatement

By Moses Walubiri

Prime Minister Amama Mbabazi has advised local governments to make do with the little resource envelope instead of agitating for the reinstatement of the Graduated Tax.

Besides leaders failing to justify its reinstatement, Mbabazi, while attending the 50th anniversary of the Rwenzururu cultural institution in Bundibugyo Town Council on Saturday, noted that Graduated Tax is both a “primitive and expensive tax to sustain.”

The Premier was responding to issues of finance raised by district leaders, which included area MPs, district LCV chairman Jolly Tibemanya, deputy RDC Willison Isingoma and district councilors.

 They complained about late releases from government, district budget indicators being below what they requisitioned and the lack of an alternate resource to Graduated Tax.

Tibemanya complained that Bundibugyo had suffered a budget cut of sh2.5b for the 2012/13 financial year. Such gaps, he said, would in the past be bridged by Graduated Tax collections which funded most districts by up to 75 percent.

Mbabazi said the financial squeeze was cross cutting, noting that his office had received zero release during the last quarter of the financial year due to tax collection shortfalls.

“The question of low local revenue collection is something we should discuss because it cuts across,” Mbabazi said, adding, “we expected to raise an additional sh528b compared to last year’s collections but there were no budget increases. Most money went to minimal increases in salaries and allowances to science teachers.”

President Museveni abolished the tax in 2005, and it was replaced with Local Service Tax and Local Hotel Tax.

The government also sought to plug the financial gap left by the tax by instituting a sh45b annual Graduated Tax compensation fund to be shared by all local governments.

However, some legislators and several district leaders have advocated for its reinstatement. They argue that its abolition has vastly constrained operations of local governments.

According to the deputy chairperson of the public service and local government committee of Parliament, Raphael Magyezi, a paltry sh6b is accruing to the coffers of all local governments from the two taxes compared to sh80b that they used to collect from the abolished tax.

This has forced the local government finance committee to conduct a holistic study on the best option of financing local governments, with its report soon to be handed to government.