What LCs says about the local service tax
Aug 08, 2007
DISTRICTS across the country are warming up for the newly-established local service tax and hotel and lodges levies. The tax has been temporarily suspended, as the Ministry of Local Government trains and sensitises LC5 chiefs on how it will operate.
By Joshua Kato
DISTRICTS across the country are warming up for the newly-established local service tax and hotel and lodges levies. The tax has been temporarily suspended, as the Ministry of Local Government trains and sensitises LC5 chiefs on how it will operate.
The local service tax will replace graduated tax, which was scrapped by the Government two years ago because it was retrogressive and barbaric in the nature of its collection. Graduated tax was the leading source of local revenue, especially in rural areas.
However, the tax was also scrapped because most of the revenue was being misappropriated. According to the local leaders, about sh80b was being collected from graduated tax. So when it was scrapped, work, especially at the lower councils, almost came to a stand-still.
“Resources from graduated tax were mainly used for funding sub-county activities, for example facilitating regular council meetings and assisting in development work. But when it was scrapped, everything collapsed,†says Kassangombe LC3 chairman Edward Musaazi.
For two years, the Government has been giving local governments a graduated tax compensation fund. Sh25b and sh45b was shared among districts in the 2005/06 and 2006/07 financial years respectively. But, the local leaders said the money was not enough.
Many sub-counties complained that they had not received their share of graduated tax compensation from their mother districts. Local leaders advocated a new tax that would be manageable. In the 2007/08 national budget, the Government proposed the local service tax and hotel and lodges levies.
However, some people are opposed to the tax. First, there are fears of double taxation. There is also a heated debate about who should be exempted and who and how it should be collected. Salary earners, through the workers’ MP Sam Lyomoki, petitioned the Government, since they are already paying Pay as You Earn, introducing another tax amounts to double taxation. Some people are advocating exemption from the tax.
According to the local government minister, Kahinda Otafiire, people who are exempted from the tax include the Uganda People’s Defence Forces, the Police and Special Police Constables and the Prisons force.
Others are the elderly and low income earners. He says anyone who earns at least sh200,000 a month must pay the tax.
Professional technicians, jua-kali artisans and business people are also supposed to pay the tax. But although the other exempted groups are easy to identify, it will be difficult to identify genuine low-income earners.
According to Otafiire, farmers with over five acres of land are liable to pay the tax. If a person has farms in different districts, each of these farms will be taxed separately.
However, according to Steven Muwanga, a farmer in Nakaseke district: “This amounts to double taxation.†He argues that although many people in the villages have more than five acres of land, many of them use it for subsistence agriculture, rather than commercial agriculture.
“There are road tolls all over the country that charge us as we take our food to the market. Won’t local service tax be a double taxation?†he wonders.
The president of the Uganda National Farmers Federation, Frank Tumwebaze, says the Government should differentiate between commercial and subsistence farmers.
Farmers are worried that chiefs may carry out wrong assessments of farmers in rural areas, as was the case with graduated tax.
Mukono town council mayor, Johnson Muyanja Ssenyonga, says: “Tomato and pancake sellers should not be taxed. There is no way these low income earners will get rich if they are taxed regularly,†he says. He explains that in the real context of taxation, it should be modelled to get money from the rich and distribute it among the poor,†he argues.
The Kaberamaido LC5 chairman, Robert Engulu, says: “The initiative is good, as it will bring money to the districts.
however, we should be careful as we go down to the public to explain it,†he says. He argues that the public should not be made to think that graduated tax is coming back under a new name.
“There should be marked differences in the two taxes, otherwise we shall get the same problems as we got with graduated tax,†Engulu says.
The collection of the tax will be handled by the sub-counties. According to Otafiire, there will be several committees to handle the tax.
These are the tax assessment committees and tax assessment tribunals. Although there are over 10 million Ugandans who are liable to pay the tax, less than two million are employed. This means that the tax from the eight million will be collected in a different manner.
At the end of the day, road-blocks will be put up, villages will be raided to collect the local service tax and it will take us back to the same old cycle of graduated tax. .
DISTRICTS across the country are warming up for the newly-established local service tax and hotel and lodges levies. The tax has been temporarily suspended, as the Ministry of Local Government trains and sensitises LC5 chiefs on how it will operate.
The local service tax will replace graduated tax, which was scrapped by the Government two years ago because it was retrogressive and barbaric in the nature of its collection. Graduated tax was the leading source of local revenue, especially in rural areas.
However, the tax was also scrapped because most of the revenue was being misappropriated. According to the local leaders, about sh80b was being collected from graduated tax. So when it was scrapped, work, especially at the lower councils, almost came to a stand-still.
“Resources from graduated tax were mainly used for funding sub-county activities, for example facilitating regular council meetings and assisting in development work. But when it was scrapped, everything collapsed,†says Kassangombe LC3 chairman Edward Musaazi.
For two years, the Government has been giving local governments a graduated tax compensation fund. Sh25b and sh45b was shared among districts in the 2005/06 and 2006/07 financial years respectively. But, the local leaders said the money was not enough.
Many sub-counties complained that they had not received their share of graduated tax compensation from their mother districts. Local leaders advocated a new tax that would be manageable. In the 2007/08 national budget, the Government proposed the local service tax and hotel and lodges levies.
However, some people are opposed to the tax. First, there are fears of double taxation. There is also a heated debate about who should be exempted and who and how it should be collected. Salary earners, through the workers’ MP Sam Lyomoki, petitioned the Government, since they are already paying Pay as You Earn, introducing another tax amounts to double taxation. Some people are advocating exemption from the tax.
According to the local government minister, Kahinda Otafiire, people who are exempted from the tax include the Uganda People’s Defence Forces, the Police and Special Police Constables and the Prisons force.
Others are the elderly and low income earners. He says anyone who earns at least sh200,000 a month must pay the tax.
Professional technicians, jua-kali artisans and business people are also supposed to pay the tax. But although the other exempted groups are easy to identify, it will be difficult to identify genuine low-income earners.
According to Otafiire, farmers with over five acres of land are liable to pay the tax. If a person has farms in different districts, each of these farms will be taxed separately.
However, according to Steven Muwanga, a farmer in Nakaseke district: “This amounts to double taxation.†He argues that although many people in the villages have more than five acres of land, many of them use it for subsistence agriculture, rather than commercial agriculture.
“There are road tolls all over the country that charge us as we take our food to the market. Won’t local service tax be a double taxation?†he wonders.
The president of the Uganda National Farmers Federation, Frank Tumwebaze, says the Government should differentiate between commercial and subsistence farmers.
Farmers are worried that chiefs may carry out wrong assessments of farmers in rural areas, as was the case with graduated tax.
Mukono town council mayor, Johnson Muyanja Ssenyonga, says: “Tomato and pancake sellers should not be taxed. There is no way these low income earners will get rich if they are taxed regularly,†he says. He explains that in the real context of taxation, it should be modelled to get money from the rich and distribute it among the poor,†he argues.
The Kaberamaido LC5 chairman, Robert Engulu, says: “The initiative is good, as it will bring money to the districts.
however, we should be careful as we go down to the public to explain it,†he says. He argues that the public should not be made to think that graduated tax is coming back under a new name.
“There should be marked differences in the two taxes, otherwise we shall get the same problems as we got with graduated tax,†Engulu says.
The collection of the tax will be handled by the sub-counties. According to Otafiire, there will be several committees to handle the tax.
These are the tax assessment committees and tax assessment tribunals. Although there are over 10 million Ugandans who are liable to pay the tax, less than two million are employed. This means that the tax from the eight million will be collected in a different manner.
At the end of the day, road-blocks will be put up, villages will be raided to collect the local service tax and it will take us back to the same old cycle of graduated tax. .