Is local service tax a raw deal?
Sep 05, 2007
FINALLY, a bill that will set in motion the collection of two new taxes has been tabled in Parliament. The local services tax and the hotel and lodgings tax were meant to start on July 1, but were suspended due to lack of an enabling law. The taxes replaced graduated tax, which was scrapped two year
By Joshua Kato
FINALLY, a bill that will set in motion the collection of two new taxes has been tabled in Parliament. The local services tax and the hotel and lodgings tax were meant to start on July 1, but were suspended due to lack of an enabling law. The taxes replaced graduated tax, which was scrapped two years ago.
It is estimated that the new taxes will generate about sh80b annually. However, local leaders are not convinced that the taxes will generate enough revenue. They have called upon the Government to get a better alternative.
Unlike the new taxes, graduated tax was supposed to be paid by everyone aged 18 and above, as long as they were not in school or housewives. Although the proposal for the new taxes says people above 18 years must pay the tax, there are exemptions.
“Local service tax leaves out people who are unable to earn a minimum income,†says Vincent Ssekono, the Permanent Secretary in the Ministry of Local Government. People who will pay the tax are employees earning above sh200,000 a month, self-employed professionals and artisans, business people with a turn-over of sh500,000 a month and farmers with over five acres of crops.
Salaried employees
Employees will deduct the amount payable during the first months of the year, before remitting it to the respective local governments. The tax will be deducted before the employees receive their salaries.
Unlike graduated tax where almost all salaried employees paid a maximum of sh100,000, there is no standard payment for salaried employees. The amount deducted depends on how much one earns.
Employees earning between sh200,000-sh300,0000 will pay sh10,000. This is lower than what they used pay as graduated tax.
Every district employs about 100 people and about 300 teachers work upcountry. Most of them qualify to pay at least sh60,000, annually. Districts also have employees of NGOs and other private bodies who pay taxes.
However, not all sub-counties have employees. for example, in Bubandi, Bundibugyo district, there are a handful of teachers. “Teachers are already paying Pay As You Earn. How can you impose another tax on them?†Rashid Mwesigye, the LC3 chairman, asks.
According to some workers, this is an additional tax directed towards salaried employees. Already, employees are angry about the high rates of Pay As You Earn.
Workers MP Dr. Sam Lyamoki is protesting the double taxation, while local leaders are worried about enforcement of the tax. “It is likely that we shall have road blocks again to find out who has not paid,†says Ronald Ndawula, the Luweero district LC5 chairman.
Employees would have to move with payment tickets and if doubt arose about the amount they paid, they would have to present a salary slip.
Farmers
According to the bill, on average, all farmers with over five acres of crops will pay the tax. Proposed amounts range from sh30,000 to sh50,000 per year. According to the 2002 census, the average acreage in Uganda is 3.5 acres a person.
“We are exempted from paying the local service tax because all our people have less than the proposed acreage,†says Ferua Andama, the LC5 chairman of Arua district.
According to the new tax proposal, everyone who owns at least 20 exotic cows and 50 indigenous cows will pay sh1,000. However, the levy should not exceed sh100,000 per year.
Districts like Mbarara, Kiruhura, Bushenyi Ibanda and Isingiro will benefit from the levy on cows. These districts have an average cattle population of 300,000 each.
However, local leaders, in the cattle-keeping areas, are pessimistic. “The local service tax will be hard to collect. We need sometime to sensitise people,†says Melchiades Kazwengye, the LC5 chairman of Ibanda.
Rice farmers with over five acres are meant to pay sh30,000 per year.
A pineapple grower with over five acres should pay sh40,000. However, most pineapple growers have an average acreage of two acres per person. This means that very few people will pay the tax.
Coffee farmers with over five acres are supposed to pay sh50,000. Luweero, Nakaseke, Masaka, Mubende and Kiboga districts will be rejoicing because many farmers there grow coffee on large scale. However, not many farmers grow more than five acres of coffee.
In Bundibugyo, although many farmers grow cocoa and maize, a few of them have more than two acres. “I have only two farmers who own 3.5 acres of cocoa. They are Misusera Mugunju with 3.5 acres and Haji Asuman Kirima who has 3.8 acres,†Mwesigye says.
Unlike the local service tax, when one paid graduated tax, he would not pay an additional tax.
For instance, a civil servant who pays the tax off his salary, but owns a five-acre farm, will have to pay the local service tax again. A farmer who has a five-acre farm in Luweero and Nakaseke will pay separate taxes for the farms.
According to the bill, this does not amount to double taxation, since the tax is imposed on different property.
Critics say basing the tax on acreage and specific crops was flawed. For instance, many tomato farmers harvest twice a year and many times, their earnings are higher than maize farmers with the same acreage.
“The tax should have been hinged on productivity, rather than acres,†says Muyanja Ssenyonga, the mayor of Mukono town council.
“We need a tax that can be collected indirectly. How do you expect me to go to a poor woman’s shamba and demand that she pays the tax?†he asks. “Who will be there to assess how much one has got from a shamba?â€
Henry Muwanguzi, a resident of Matugga says: “This tax is worse than graduated tax. What will the local leader do if someone fails to pay the tax?â€
Business people:
Self-employed professionals earning above sh1m per month will pay sh100,000 per year.
Self-employed artisans will pay sh10,000 or sh20,000 depending on their income. The dilemma for local governments, however, is determining the exact incomes of these people.
But, this also favours urban local governments. There are so many rural sub-counties that do not have even one trading centre. If they do, none of the business people there is legible to pay the tax.
In Uganda, a few people keep records of transactions and even when they present the books of accounts, they are falsified to dodge taxes.
“Local leaders have a duty to carry out research about businesses in their areas,†says Steven Birija, the Masindi LC5 chairman .
Hotel and lodgings tax
Urban local governments will benefit most from the new taxes. However, they are up in arms since hotels have already been paying value-added tax and other licenses.
According to the bill, five-star hotels are supposed to pay sh2,000 per room occupied. This money is supposed to be collected monthly by the hotel management and paid to the local administration. But, how many five-star hotels do we have in Uganda?
Kampala has 300 hotels, with room capacity of over 1,500. The rooms are occupied throughout the month. Over sh90m per month or sh1b a year, will be collected.
On top of this, about sh4b is expected from salaried employees in the city. But one wonders who will be around to check if a room has been occupied or not.
Local governments will have hardships collecting funds from hotels. “Hotels do not get clients everyday. So the planners should not have imposed the tax on daily income,†Muyanja says.
Therefore, although bringing the bill to parliament was a step ahead, a lot still needs to be done.
FINALLY, a bill that will set in motion the collection of two new taxes has been tabled in Parliament. The local services tax and the hotel and lodgings tax were meant to start on July 1, but were suspended due to lack of an enabling law. The taxes replaced graduated tax, which was scrapped two years ago.
It is estimated that the new taxes will generate about sh80b annually. However, local leaders are not convinced that the taxes will generate enough revenue. They have called upon the Government to get a better alternative.
Unlike the new taxes, graduated tax was supposed to be paid by everyone aged 18 and above, as long as they were not in school or housewives. Although the proposal for the new taxes says people above 18 years must pay the tax, there are exemptions.
“Local service tax leaves out people who are unable to earn a minimum income,†says Vincent Ssekono, the Permanent Secretary in the Ministry of Local Government. People who will pay the tax are employees earning above sh200,000 a month, self-employed professionals and artisans, business people with a turn-over of sh500,000 a month and farmers with over five acres of crops.
Salaried employees
Employees will deduct the amount payable during the first months of the year, before remitting it to the respective local governments. The tax will be deducted before the employees receive their salaries.
Unlike graduated tax where almost all salaried employees paid a maximum of sh100,000, there is no standard payment for salaried employees. The amount deducted depends on how much one earns.
Employees earning between sh200,000-sh300,0000 will pay sh10,000. This is lower than what they used pay as graduated tax.
Every district employs about 100 people and about 300 teachers work upcountry. Most of them qualify to pay at least sh60,000, annually. Districts also have employees of NGOs and other private bodies who pay taxes.
However, not all sub-counties have employees. for example, in Bubandi, Bundibugyo district, there are a handful of teachers. “Teachers are already paying Pay As You Earn. How can you impose another tax on them?†Rashid Mwesigye, the LC3 chairman, asks.
According to some workers, this is an additional tax directed towards salaried employees. Already, employees are angry about the high rates of Pay As You Earn.
Workers MP Dr. Sam Lyamoki is protesting the double taxation, while local leaders are worried about enforcement of the tax. “It is likely that we shall have road blocks again to find out who has not paid,†says Ronald Ndawula, the Luweero district LC5 chairman.
Employees would have to move with payment tickets and if doubt arose about the amount they paid, they would have to present a salary slip.
Farmers
According to the bill, on average, all farmers with over five acres of crops will pay the tax. Proposed amounts range from sh30,000 to sh50,000 per year. According to the 2002 census, the average acreage in Uganda is 3.5 acres a person.
“We are exempted from paying the local service tax because all our people have less than the proposed acreage,†says Ferua Andama, the LC5 chairman of Arua district.
According to the new tax proposal, everyone who owns at least 20 exotic cows and 50 indigenous cows will pay sh1,000. However, the levy should not exceed sh100,000 per year.
Districts like Mbarara, Kiruhura, Bushenyi Ibanda and Isingiro will benefit from the levy on cows. These districts have an average cattle population of 300,000 each.
However, local leaders, in the cattle-keeping areas, are pessimistic. “The local service tax will be hard to collect. We need sometime to sensitise people,†says Melchiades Kazwengye, the LC5 chairman of Ibanda.
Rice farmers with over five acres are meant to pay sh30,000 per year.
A pineapple grower with over five acres should pay sh40,000. However, most pineapple growers have an average acreage of two acres per person. This means that very few people will pay the tax.
Coffee farmers with over five acres are supposed to pay sh50,000. Luweero, Nakaseke, Masaka, Mubende and Kiboga districts will be rejoicing because many farmers there grow coffee on large scale. However, not many farmers grow more than five acres of coffee.
In Bundibugyo, although many farmers grow cocoa and maize, a few of them have more than two acres. “I have only two farmers who own 3.5 acres of cocoa. They are Misusera Mugunju with 3.5 acres and Haji Asuman Kirima who has 3.8 acres,†Mwesigye says.
Unlike the local service tax, when one paid graduated tax, he would not pay an additional tax.
For instance, a civil servant who pays the tax off his salary, but owns a five-acre farm, will have to pay the local service tax again. A farmer who has a five-acre farm in Luweero and Nakaseke will pay separate taxes for the farms.
According to the bill, this does not amount to double taxation, since the tax is imposed on different property.
Critics say basing the tax on acreage and specific crops was flawed. For instance, many tomato farmers harvest twice a year and many times, their earnings are higher than maize farmers with the same acreage.
“The tax should have been hinged on productivity, rather than acres,†says Muyanja Ssenyonga, the mayor of Mukono town council.
“We need a tax that can be collected indirectly. How do you expect me to go to a poor woman’s shamba and demand that she pays the tax?†he asks. “Who will be there to assess how much one has got from a shamba?â€
Henry Muwanguzi, a resident of Matugga says: “This tax is worse than graduated tax. What will the local leader do if someone fails to pay the tax?â€
Business people:
Self-employed professionals earning above sh1m per month will pay sh100,000 per year.
Self-employed artisans will pay sh10,000 or sh20,000 depending on their income. The dilemma for local governments, however, is determining the exact incomes of these people.
But, this also favours urban local governments. There are so many rural sub-counties that do not have even one trading centre. If they do, none of the business people there is legible to pay the tax.
In Uganda, a few people keep records of transactions and even when they present the books of accounts, they are falsified to dodge taxes.
“Local leaders have a duty to carry out research about businesses in their areas,†says Steven Birija, the Masindi LC5 chairman .
Hotel and lodgings tax
Urban local governments will benefit most from the new taxes. However, they are up in arms since hotels have already been paying value-added tax and other licenses.
According to the bill, five-star hotels are supposed to pay sh2,000 per room occupied. This money is supposed to be collected monthly by the hotel management and paid to the local administration. But, how many five-star hotels do we have in Uganda?
Kampala has 300 hotels, with room capacity of over 1,500. The rooms are occupied throughout the month. Over sh90m per month or sh1b a year, will be collected.
On top of this, about sh4b is expected from salaried employees in the city. But one wonders who will be around to check if a room has been occupied or not.
Local governments will have hardships collecting funds from hotels. “Hotels do not get clients everyday. So the planners should not have imposed the tax on daily income,†Muyanja says.
Therefore, although bringing the bill to parliament was a step ahead, a lot still needs to be done.