Keep graduated tax

COL KIIZA Besigye has promised to scrap graduated tax if he is elected President of Uganda. Promising to abolish graduated tax may be a vote winner because it is the only direct tax that most farmers pay. However it is unwise. It will remove the main source of revenue for districts and force central government to increase general taxation. The bulk of districts' income comes from graduated tax. Scrapping graduated tax would make districts more dependent on the state and undermine the process of decentralisation and democratisation. Graduated tax is not peculiar to Uganda. It exists in both developed and developing countries around the world. Uganda is the least taxed country in East Africa with only around 11 per cent of Gross Domestic Product collected in tax. If graduated tax is abolished, then the URA will have to find extra money from taxpayers so that central government can fund the shortfall in districts' revenue. A huge number of people will fall out of the tax net if graduated tax is abolished. Those in formal sector employment will have to pay more tax to compensate. This may be through direct taxation by higher rates of PAYE or through increased indirect taxation on commodities such as beer, soda and fuel. The increased tax burden will fall predominantly on those in urban areas and those that benefit will be mainly from the rural areas. Some might argue that this is a good thing yet tax collection is already excessively focussed on the formal sector and the urban population. It would not be fair to increase the urban burden. As Minister of Local Government Bidandi Ssali said this week, the best way forward is to streamline assessment and collection of graduated tax to make it as fair and equitable as possible. Ends.