Can Graduated Tax Be Justified Today?

* The teacher who earns a paltry sh72,000 a month and her minister of education both pay sh81,000 By Gawaya Tegulle INHUMAN. Primitive. Obsolete. A project whose cost surpasses its convenience. Parliament has no kind words for graduated tax and recently a huge wave of anti-graduated tax sentiment swept through the esteemed House: Graduated tax must go! It is not because MPs are short of more flattering adjectives for this tax. Rather, after decades of its existence, graduated tax is increasingly becoming hard to justify. The tax has roots in the colonial setting. It was meant to encourage Africans to produce and develop their own areas. In the past, it went hand in hand with the institution of a chief. He would assess each person and enforce payment. He had the power to waive taxation or punish defaulters and they were not called to account for the money. Presently, it has been sustained as a means of encouraging self-sufficiency in local governments; and is paid by all able-bodied men and working women. The only exception are students, the feeble elderly and housewives. Parliamentarians observe that the ability of people to pay taxes is fast declining, yet the tax is getting higher by the year. More so, the standard of financial management and accountability is limited especially at sub-counties where people with low academic qualifications hold power. Medi Kaggwa observed that most countries are doing without graduated tax but can provide services (far higher in quality and quantity than Uganda's) to their people. Ironically, the clamour for abolition of Uganda's most unpopular tax comes at a time when it is needed most. It is the highest revenue earner for many districts. All other taxes go to the central government. The district is left with petty and narrow revenue sources like market dues and ground rent, besides graduated tax. This is too narrow a revenue base to shoulder the development plans of the district. Already most districts are insolvent; they cannot afford to meet all their revenue targets, accomplish their work plans and pay employees. Abolishing graduated tax would practically kill them. Section 86 of the Local Government Act 1997 stipulates: (1) In the city and municipal councils, revenue shall be collected by the Division councils and a Division council shall retain 50% of all the revenue it collects in its area of jurisdiction and remit 50% to the city or municipal council. (2) In rural areas, revenue shall be collected by the sub-county councils and a sub-county council shall retain 65%, or any other higher percentage as the District Council may approve, of the revenue collected by it and pass the remaining percentage over to the district. "It is one of the major sources of revenue for local governments," says Benon Mutambi, a senior research officer in Bank of Uganda. "With decentralisation it was expected that local governments would be able to generate their own income. So what would you expect these districts to do? Doing away with graduated tax implies doing away with decentralisation." Most people, tax officials in Kampala City Council (KCC) say, do not want to pay their taxes. Those who do, pay a lot less than they ought to. "Most people do not want to pay tax because they do not see what their money does," says Johnson Ongom, chairman of the Kampala Central Division's Tax Assessment Committee. "They find cost sharing in the hospitals that used to be free of charge, the roads are bad, etc." "A good tax must be efficient, equitable (richer pays more, the poorer pays less) and easy to administer. And it must not discourage people from working," says Mutambi. But these are characteristics that graduated tax is, so far, very much short of and which cut it out as a bad tax. There are 24 grades in graduated tax. Someone earning sh20,000 to 21,000 a month, for example, pays the lowest figure - sh15,000 which becomes sh16,000 with the inclusion of education tax of sh1,000. That is grade 1. The highest (grade 24) is sh81,000 (education tax inclusive) paid by those who earn above sh68,334 per month. But the fairness and equity of this tax is questionable. The primary school teacher who earns a paltry sh72,000 a month and her minister of education whose income defines "juicy" with grammatical precision, both pay sh81,000. This tax is also difficult to administer. Roadblocks and door-to-door searches are the only means of making sure Ugandans, many of whom have a passionate dislike for the tax, have paid up. The roadblocks' major contribution has been creating traffic jams, delaying folks rushing to work and harassing and scaring people - and jailing defaulters. Its efficiency too is under fire with the legislators and many other commentators alleging that the cost of collecting graduated tax is far higher than the revenue generated. There are no figures available so far to validate this point. And graduated tax has made a nice job of discouraging production. Young men are rounded up and jailed for months for defaulting. This makes it a tax enforced in disregard of the wider development perspectives. "If you round up all the young men in a village and lock them up in prison because they cannot pay sh10,000 each; who will man the shambas?," asks Odrek Rwabwogo, Uganda Revenue Authority (URA) media research officer. "This affects the performance of the rural economy and is therefore a disincentive to production." In the city and municipal councils, each division has an assessment committee. This, with the help of a tax schedule, decides what amount one should pay depending on their income. A discontented tax payer can appeal the committee's decisions to a higher power, the Tax Appeal Tribunal. But even tax assessment is close to abstract and the committee finds a nightmare establishing who is living where or paying what. In the case of companies, it is straightforward - just glance at the payrolls. But for individuals, it would require divine intervention for the city suffering a severe short supply of truth-tellers. "The only way we establish individual people's incomes is when they speak the truth," says Ongom. "But most people do not; it is only the Indians who are faithful. They pay sh80,000 straight, without negotiation or pleading." Some people go to every division for assessment; then choose to pay in the division with the lowest figure. Others run to say, Mpigi, pay there and return confidently. None can dare arrest such a faithful tax payer. In the villages, some chiefs look at someone's shamba and guess rather than make a comprehensive assessment of the tax to be paid. With crude modalities of collection and unorthodox assessment, graduated tax is increasingly becoming a hard thing to defend. It is the terror of the young men, the dread of the peasants and a catalyst of social upheaval. It is known better as a punishment meted out by government for being a man or for remaining alive. It is poorly planned, inhumanly enforced and its usefulness has successfully eluded many an eye. Today, this remains a tax that many people pay so that they do not get embarrassed by being roped up and carted away to jail. Or because they work in corporations or government and have no choice because it is chopped off their salaries before they get them. "Abolition is not yet the position of government," says the Permanent Secretary for Local Government. "We are studying the proposal for consideration by the executive." Says Gordon Mwesigye, Kampala Town Clerk: "If the feeling is that the tax is primitive and obsolete, no problem. Let there be a substitute so that this vacuum is filled. This tax is not collected simply for the sake of collection, but for provision of services. And let those who say the costs of collection is more than revenue prove it." The way forward, argues Rwabwogo, is twofold. One, abolish graduated tax and put in place a substitute. Two; sustain it, but after a sweeping reform to make it more acceptable to the people by altering the mode of collection and translating it into tangible development that convinces the people that their money is being invested wisely. More important, local authorities should not only tax and run off till the next year. There is need for deliberate effort to teach people how to make more money so that they will pay more tax. Ends.