LOCAL GOVT PROPOSES FARMERS’ TAX AFTER SERVICE TAX FAILURE
Dec 16, 2009
Collection of the Local Service Tax (LST) and Local Hotel Tax (LHT) started on July 1 2008 as an easier alternative to the scrapped Graduated Tax (GT).
BY JOSHUA KATO
Collection of the Local Service Tax (LST) and Local Hotel Tax (LHT) started on July 1 2008 as an easier alternative to the scrapped Graduated Tax (GT).
At the time, sh80b was expected to be raised. However, by the end of the 2008/09 Financial Year, only sh4b had been collected from both taxes, indicating a success rate of less than 5%.
As local government leaders gathered during their Annual General Meeting in Hoima, it was apparent that replacing GT will take something much bigger than LST and LHT.
“At the LC3 level, there is very little activity since GT was scrapped,†says Vincent Bamulangaki Ssempijja, the Masaka LC5 chairman.
At the same time, the Government wants to introduce a new tax called the Commercial Farmers Tax to boost the LST.
Anything new?
The Commercial Farmers’ Tax (CFT) is to be collected from practising professionals, businesses and large scale commercial farmers.
For salaried employees, it will be charged from the amount left after deducting Pay as You Earn and remitted to the local governments where employees reside.
Those exempted from this tax are the army, the Police, prisons and the local defense. Also to be exempted are diplomats, unemployed peasants, the elderly and people living in poverty who are unable to access basic necessities of life.
The LHT is levied on hotel rooms through bills paid by customers. When one occupies a five or four-star hotel, he will pay $2 (about sh4,000) per room a night. For a three or two-star hotel and other hotels charging above sh50,000 per night, he or she 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 commercial farm land or cattle keepers with at least 20 cows will also pay commercial tax.
Is LST different from GT?
Teachers who earned sh130,000 at the time GT was scrapped paid sh100,000, the same amount as people who earned sh2m. This time, teachers will pay only sh5,000. Before GT was scrapped, those who earned above sh1m and paid sh100,000 will pay the same amount with LST.
Mixed reactions
For the last two years, LST has been collected from civil servants and salaried earners who are few in rural areas.
In most rural districts, teachers are the majority salaried earners while most other professionals are urban-based. With an average of 300 teachers in a district and every teacher earning about sh200,000 per month, each will pay sh5,000, raising sh1.5m of revenue for the district in a year.
In a district of about 100 district administrative officers, it is only the district chairman and the Chief Administrative Officer (CAO) who are elligible to pay sh100,000.
If on average, each staff earns sh400,000 and pays sh30,000 per year, they may raise at least sh12m for the district. Thus, many districts have not made much headway in collecting LST from self-employed professionals and commercial farmers. Leaders claim that collecting LST is a tall order. “How can you collect taxes from a small farmer who has just come from a war situation?†asks Julius Ochen, LC5 chairman, Amuria.
Urban areas should have benefited from LHT since they have the highest concentration of hotels and lodges, but lack of a mechanism to monitor who comes to a hotel makes it difficult.
Adolf Mwesige, minister of Local Government, says if the figures are not rising, there may be a review of the tax after three years.
In the mean time: “We have agreed to continue giving GT compensation until 2013,†he says. About sh45b is given to local governments annually.
-----------------------------------------
- If one earns sh5,000, sh1,250 will be deducted
- If one earns sh30,000, sh7,500 will be deducted
- Those who earn above sh100,000 but not more than 200,000, sh5,000 will be deducted per year
- Those who earn between sh200,000 and 300,000 will pay sh10,000 per year
- Those earning sh300,000 and 400,000 will pay sh200,000 per year
l Between sh400,000 and 500,000 one will pay sh30,000 per year
- The figures increase by sh10,000 as the person’s income rises
- The highest amount is shillings 120,000, which is to be paid by those earning sh2m and avove.
Implications on salaried earners
Collection of the Local Service Tax (LST) and Local Hotel Tax (LHT) started on July 1 2008 as an easier alternative to the scrapped Graduated Tax (GT).
At the time, sh80b was expected to be raised. However, by the end of the 2008/09 Financial Year, only sh4b had been collected from both taxes, indicating a success rate of less than 5%.
As local government leaders gathered during their Annual General Meeting in Hoima, it was apparent that replacing GT will take something much bigger than LST and LHT.
“At the LC3 level, there is very little activity since GT was scrapped,†says Vincent Bamulangaki Ssempijja, the Masaka LC5 chairman.
At the same time, the Government wants to introduce a new tax called the Commercial Farmers Tax to boost the LST.
Anything new?
The Commercial Farmers’ Tax (CFT) is to be collected from practising professionals, businesses and large scale commercial farmers.
For salaried employees, it will be charged from the amount left after deducting Pay as You Earn and remitted to the local governments where employees reside.
Those exempted from this tax are the army, the Police, prisons and the local defense. Also to be exempted are diplomats, unemployed peasants, the elderly and people living in poverty who are unable to access basic necessities of life.
The LHT is levied on hotel rooms through bills paid by customers. When one occupies a five or four-star hotel, he will pay $2 (about sh4,000) per room a night. For a three or two-star hotel and other hotels charging above sh50,000 per night, he or she 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 commercial farm land or cattle keepers with at least 20 cows will also pay commercial tax.
Is LST different from GT?
Teachers who earned sh130,000 at the time GT was scrapped paid sh100,000, the same amount as people who earned sh2m. This time, teachers will pay only sh5,000. Before GT was scrapped, those who earned above sh1m and paid sh100,000 will pay the same amount with LST.
Mixed reactions
For the last two years, LST has been collected from civil servants and salaried earners who are few in rural areas.
In most rural districts, teachers are the majority salaried earners while most other professionals are urban-based. With an average of 300 teachers in a district and every teacher earning about sh200,000 per month, each will pay sh5,000, raising sh1.5m of revenue for the district in a year.
In a district of about 100 district administrative officers, it is only the district chairman and the Chief Administrative Officer (CAO) who are elligible to pay sh100,000.
If on average, each staff earns sh400,000 and pays sh30,000 per year, they may raise at least sh12m for the district. Thus, many districts have not made much headway in collecting LST from self-employed professionals and commercial farmers. Leaders claim that collecting LST is a tall order. “How can you collect taxes from a small farmer who has just come from a war situation?†asks Julius Ochen, LC5 chairman, Amuria.
Urban areas should have benefited from LHT since they have the highest concentration of hotels and lodges, but lack of a mechanism to monitor who comes to a hotel makes it difficult.
Adolf Mwesige, minister of Local Government, says if the figures are not rising, there may be a review of the tax after three years.
In the mean time: “We have agreed to continue giving GT compensation until 2013,†he says. About sh45b is given to local governments annually.
-----------------------------------------
- If one earns sh5,000, sh1,250 will be deducted
- If one earns sh30,000, sh7,500 will be deducted
- Those who earn above sh100,000 but not more than 200,000, sh5,000 will be deducted per year
- Those who earn between sh200,000 and 300,000 will pay sh10,000 per year
- Those earning sh300,000 and 400,000 will pay sh200,000 per year
l Between sh400,000 and 500,000 one will pay sh30,000 per year
- The figures increase by sh10,000 as the person’s income rises
- The highest amount is shillings 120,000, which is to be paid by those earning sh2m and avove.
Implications on salaried earners