Will LCs benefit from local service tax?
Jun 11, 2008
THE collection of two new taxes the Local Service Tax (LST) and the Local Hotel Tax (LHT) will start on July 1. During the budget reading last year, the minister of finance projected that about sh80b was expected from the taxes. This will be above the sh70b that local governments were collecting fro
By Joshua Kato
THE collection of two new taxes the Local Service Tax (LST) and the Local Hotel Tax (LHT) will start on July 1. During the budget reading last year, the minister of finance projected that about sh80b was expected from the taxes. This will be above the sh70b that local governments were collecting from Graduated Tax (G/T), before it was scrapped. While some leaders have welcomed the move others say collection of the taxes may not be viable.
Facts about the taxes
LST will be levied by local governments and paid by salaried workers in both both public and the private sector, business people and large-scale farmers. Employers will collect the tax from employees after Pay as You Earn deductions.
The tax will be deducted in four installments and paid to the local governments where employees reside.
Any one earning between sh100,000 and 200,000 will pay sh5,000. Those earning more than sh200,000 but below sh300,000 will pay sh10,000. Those earning more than sh300,000 but less than sh400,000 will pay sh20,000, between sh400,000 and 500,000 will pay sh30,000. The highest is sh120,000, which is to be paid by those earning sh2m and above.
The Army, Police, Prisons and Local Defence personnel and the unemployed, elderly and poor will be exempted from local service tax.
The local hotels tax shall be levied on hotel rooms and shall be paid by guests. When one occupies a four or five star hotel, he will pay $2 per night. If one occupies a two or three star hotel, and other hotels charging above sh50,000 per night, he pays sh2,000 per day. Hotels, lodges and guest houses charging sh10,000-50,000 will pay sh1,000 per room, while those charging less than sh10,000 will pay sh500 per room.
Farmers with over three acres of land and cattle-keepers with at least 20 head of cattle will be taxed.
According to the local government minister Maj. Gen. Kahinda Otafiire, local service tax compared to graduated tax is not levied on everyone above 18 years. It will be levied more rationally than graduated tax. For example, teachers who earned sh130,000 and employees who earned sh2m all paid sh100,000 as graduated tax. With the LST, teachers will pay only sh5,000! “One of the reasons I hated G/T was that it taxed people with different salaries the same way,†says Sam Muwanga a teacher in Kanyanya. He earns sh200,000 per month, thus he pays a LST of sh5,000.
However, those who earn above sh1m will still pay sh100,000, the same amount as it was before G/T was scrapped.
Expected revenue/its use
Before the introduction of these taxes, local governments were receiving graduated tax compensation. Since compensation depends on the central government, district leaders were intent on having a source of revenue they could control. “It may not bring in billions, but it is better than graduated tax compensation,†says Vincent Ssempijja, the LC5 chairman of Rakai.
“I think local hotels tax will be beneficial to Gulu Municipality because we have many lodges and more are coming up because of the booming business with Sudan,†says Gulu Municipality mayor, Christopher Acire. Other municipalities like Lira, Soroti, Kabale, Kasese, Entebbe, Jinja and Mbale are have similar hopes. Kampala, which has about 300 hotels is hoping to get about sh7b from LST and sh1b from LHT.
The absence of a sound local revenue source had almost brought operations of sub-counties to a stand still. “Sub-counties depended on G/T. When it was removed, they faced problems,†observed John Karazarwe, the LC5 chairman Ntungamo. It is from local taxes that councillors are supposed to get not more than 20% of the collected revenue to facilitate council meetings. For two years, many rural districts their councils were forced not to hold meetings due to inadequate sitting allowances.
Even with all the barriers rural districts may face in collecting this tax, the sub-counties that will levy and collect the taxes will benefit. As a result, all districts have included LST and LHT in their budgets.
Mixed reactions
In most rural districts, the main employees are teachers. There are about 300 teachers in each district who earn sh200,000 each. Each of them will pay sh5,000 raising just sh1.5m.
There is also an average of 100 district staff, but only the chairman and the chief administrative officer are legible to pay the maximum sh100,000. The other staff earn about sh400,000 each. Each of them will pay sh30,000 per year, which may raise at least sh12m. This is what most districts might have for the whole year.
Some leaders are not happy with the exemptions. “Why are soldiers and policemen exempted from the tax? wonders Acire.
“I think we should start with a pilot scheme, while maintaining the G/T compensation until people get well-versed with it,†says Amuria LC5 chairman Julius Ochen. “Urban areas will benefit, since they have the highest number of hotels and lodges,†says Ibanda LC5 chairman Melchiedes Kazwengye. Kazwengye adds that while the average number of cows per family in his district is 10, the law requires 20 cows for one to be taxed.
In a rural sub-county like Bubandi in Bundibugyo there is no hotel, neither are there farmers who have enough acreage of land to be taxed. “We shall get very little money. So how are we benefiting? wonders Rashid Mwesigye, the Bubandi LC3 chairman. The biggest piece of land one has is two acres, while the highest number of cows that a farmer in his sub-county has is six. All these are below the required numbers. Again, there are many more sub-counties like Bubandi.
“Even these hotels here in Mukono council are not occupied most of the time,†says Mukono Town Council Mayor Johnson Muyanja Ssenyonga. “Who will measure a farmers land, for example? Who will be there to see that this lodge has got a customer or not? asks Ssempijja.
THE collection of two new taxes the Local Service Tax (LST) and the Local Hotel Tax (LHT) will start on July 1. During the budget reading last year, the minister of finance projected that about sh80b was expected from the taxes. This will be above the sh70b that local governments were collecting from Graduated Tax (G/T), before it was scrapped. While some leaders have welcomed the move others say collection of the taxes may not be viable.
Facts about the taxes
LST will be levied by local governments and paid by salaried workers in both both public and the private sector, business people and large-scale farmers. Employers will collect the tax from employees after Pay as You Earn deductions.
The tax will be deducted in four installments and paid to the local governments where employees reside.
Any one earning between sh100,000 and 200,000 will pay sh5,000. Those earning more than sh200,000 but below sh300,000 will pay sh10,000. Those earning more than sh300,000 but less than sh400,000 will pay sh20,000, between sh400,000 and 500,000 will pay sh30,000. The highest is sh120,000, which is to be paid by those earning sh2m and above.
The Army, Police, Prisons and Local Defence personnel and the unemployed, elderly and poor will be exempted from local service tax.
The local hotels tax shall be levied on hotel rooms and shall be paid by guests. When one occupies a four or five star hotel, he will pay $2 per night. If one occupies a two or three star hotel, and other hotels charging above sh50,000 per night, he pays sh2,000 per day. Hotels, lodges and guest houses charging sh10,000-50,000 will pay sh1,000 per room, while those charging less than sh10,000 will pay sh500 per room.
Farmers with over three acres of land and cattle-keepers with at least 20 head of cattle will be taxed.
According to the local government minister Maj. Gen. Kahinda Otafiire, local service tax compared to graduated tax is not levied on everyone above 18 years. It will be levied more rationally than graduated tax. For example, teachers who earned sh130,000 and employees who earned sh2m all paid sh100,000 as graduated tax. With the LST, teachers will pay only sh5,000! “One of the reasons I hated G/T was that it taxed people with different salaries the same way,†says Sam Muwanga a teacher in Kanyanya. He earns sh200,000 per month, thus he pays a LST of sh5,000.
However, those who earn above sh1m will still pay sh100,000, the same amount as it was before G/T was scrapped.
Expected revenue/its use
Before the introduction of these taxes, local governments were receiving graduated tax compensation. Since compensation depends on the central government, district leaders were intent on having a source of revenue they could control. “It may not bring in billions, but it is better than graduated tax compensation,†says Vincent Ssempijja, the LC5 chairman of Rakai.
“I think local hotels tax will be beneficial to Gulu Municipality because we have many lodges and more are coming up because of the booming business with Sudan,†says Gulu Municipality mayor, Christopher Acire. Other municipalities like Lira, Soroti, Kabale, Kasese, Entebbe, Jinja and Mbale are have similar hopes. Kampala, which has about 300 hotels is hoping to get about sh7b from LST and sh1b from LHT.
The absence of a sound local revenue source had almost brought operations of sub-counties to a stand still. “Sub-counties depended on G/T. When it was removed, they faced problems,†observed John Karazarwe, the LC5 chairman Ntungamo. It is from local taxes that councillors are supposed to get not more than 20% of the collected revenue to facilitate council meetings. For two years, many rural districts their councils were forced not to hold meetings due to inadequate sitting allowances.
Even with all the barriers rural districts may face in collecting this tax, the sub-counties that will levy and collect the taxes will benefit. As a result, all districts have included LST and LHT in their budgets.
Mixed reactions
In most rural districts, the main employees are teachers. There are about 300 teachers in each district who earn sh200,000 each. Each of them will pay sh5,000 raising just sh1.5m.
There is also an average of 100 district staff, but only the chairman and the chief administrative officer are legible to pay the maximum sh100,000. The other staff earn about sh400,000 each. Each of them will pay sh30,000 per year, which may raise at least sh12m. This is what most districts might have for the whole year.
Some leaders are not happy with the exemptions. “Why are soldiers and policemen exempted from the tax? wonders Acire.
“I think we should start with a pilot scheme, while maintaining the G/T compensation until people get well-versed with it,†says Amuria LC5 chairman Julius Ochen. “Urban areas will benefit, since they have the highest number of hotels and lodges,†says Ibanda LC5 chairman Melchiedes Kazwengye. Kazwengye adds that while the average number of cows per family in his district is 10, the law requires 20 cows for one to be taxed.
In a rural sub-county like Bubandi in Bundibugyo there is no hotel, neither are there farmers who have enough acreage of land to be taxed. “We shall get very little money. So how are we benefiting? wonders Rashid Mwesigye, the Bubandi LC3 chairman. The biggest piece of land one has is two acres, while the highest number of cows that a farmer in his sub-county has is six. All these are below the required numbers. Again, there are many more sub-counties like Bubandi.
“Even these hotels here in Mukono council are not occupied most of the time,†says Mukono Town Council Mayor Johnson Muyanja Ssenyonga. “Who will measure a farmers land, for example? Who will be there to see that this lodge has got a customer or not? asks Ssempijja.