Mindset killing tax compliance

 

 

This is the dilemma of Uganda's tax system — a group who have money but do not want to pay taxes on the one hand and compliant salaried workers whose taxes are deducted from source alongside less than 1,000 big enterprises.

 

"What is running this country is a few tax payers, which is not fair. Let us not shield others as a few bear the burden," says Allen Kagina, Uganda Revenue Authority (URA) commissioner general.

 

Central to this conundrum is the fact that the high income earners are off the tax radar. These are some of the emerging issues in a debate between URA and media, all aimed at trying to take revenue collection to the next level.

 

The URA senior management team met Vision Group senior team over the weekend as the two institutions set the tone for this debate, following an earlier visit by URA senior team to the media house.

 

Tax experts agree that those who don't pay taxes or who pay little tax, below their tax obligation, are the most vocal yet using global best practices, the country can harvest more from them if everybody, including the public, demanded for more compliance.

 

"Let people demand from those who don't want to pay taxes. The mindset we want now is for people to demand accountability. The fact that somebody does not pay taxes and nobody is concerned worries me," says Kagina.

 

Currently, there is a good foundation and some benchmarks to positively and practically push the debate. For instance, 63% of the national budget is funded by Ugandans, second only to Kenya (95%). Tanzania funds only 52% of its budget internally, while Rwanda and Burundi only fund 48% and 45% of their national budgets respectively.

 

The reluctance to pay taxes, according to city traders is partly due to the inconvenience, uncertainty, low sensitisation, as well as the abuse of the tax money in the corruption riddled system.

 

"You cannot give to Caesar what belongs to Caesar when Caesar does not give you what belongs to you," says Lawrence Othieno, a research fellow from the Economic Policy Research Centre.

 

Issa Ssekito, the spokesman of the Kampala City Traders Association, says containing corruption and accountability for revenues collected is essential in encouraging tax payer compliance.

 

"Gross mismanagement of tax revenue dampens the morale of taxpayers, hence inadvertently encouraging tax evasion and avoidance," says Ssekito.

Robert Kabushenga, the Vision Group chief executive officer, says what is left is how to change the tax narrative and increase collections.

 

He called for a strategic relationship between the media, URA, Bank of Uganda and Ministry of Finance and the expansion of the debate about more tax payers getting involved.

 

"We will never have that debate if the people controlling it are 500 (large tax payers), the debate should involve all the agencies, we need to depict tax collection as a noble exercise," said Kabushenga at URA headquarters in Nakawa, Kampala. 

 

The large tax payers constitute only 1% of the total tax payers but contribute 80% of revenue, while the medium sized are 2,000 and contribute 15%. The small tax payers are the largest number but contribute only 5%.

 

"The informal sector needs to be unpacked as an entry point," said Kagina, citing the truck loads of unprocessed milk going to the big industries such as Sameer as "not small agriculture." 

 

"We want to burst the myth that agriculture is subsistence," says Kagina.

Moses Kagwa, commissioner tax policy in the Ministry of finance says what is usually described as informal are big businesses that hide under informal blanket but should be having more tax obligations. He acknowledged that more needs to be done on sensitization and education.

 

The other sectors that need to be opened up are wholesale trading, real estate and construction.

 

To prepare a tax paying generation for the future, Kagina says the mindset needs to be changed from people who want to make money quickly to people who plan for generations.

 

Barbara Kaija, Vision Group editor-in-chief says URA should narrow their story script with the story starting from what happens when you don't pay tax.

 

Kaija called for joint campaigns and creative approaches including the use of drama series.

 

Despite the small tax paying population, progress has been made. Revenue collection has risen from sh198 billion (now collected in a third of a month) in 1991 to over sh6 trillion today. The 2011/12 target was sh6.2 trillion while in 2013, it was sh7.2 trillion and is likely to rise to sh8.4 trillion in the new financial year.

 

"The burden on URA is getting bigger and it means we have to be more efficient but tax policy is not changing," said Kagina.

 

The economy has also over the years grown which is reflected in the percentage of international trade which has fallen to 46% (Kenya-38%). 

 

There are now 24-hour services at four border points-Malaba, Busia, Entebbe and Mutukula.

The tax authority has made major inroads in simplifying compliance including the adaption of technology to the extent that almost 98% of domestic tax management is automated. 

 

The authority is also transforming to woo people to pay tax instead of using the full force of the law. Going forward, URA expects complete mobile phone integration for tax services, digital signature as well as integrating with the national identity card.