Govt rejects calls to reintroduce Graduated Tax

By Moses Walubiri

KAMPALA - A decade after its abolition, minister of local government, Adolf Mwesige, has knocked back calls for government to reconsider its decision to scrap graduated tax, saying the levy is "permanently" consigned to the archives of history.

President Yoweri Museveni abolished Graduated Tax during his 2005 presidential campaigns, arguing that the tax was a colonial relic characterized by humiliation in its enforcement, besides being expensive to collect.

It was common for graduated tax defaulters in villages to scamper at the sight of road blocks, with those caught in dragnets humiliated in presence of their wives and children.

"Government has no intention of reintroducing graduated tax. This tax was part of Uganda's tax regime until Parliament decided to scrap it. There is no way back for it," Mwesige, who is also the Bunyangabu MP, told lawmakers on the Public Service and Local Government committee.

Mwesige who was at parliament to present his ministry's budget estimates was responding to a query by Kiyingi Bbosa (Mawokota North) as to whether government has since had a change of heart over the matter in light of the financial constraints blighting local governments.

Calls to reinstate graduated tax has lately gained traction with some religious leaders and politicians reasoning that its abolition is ruining men in the countryside as they lack any incentive to work.

In 2012 Mbarara Woman MP, Emma Boona said abolition of graduated tax has allowed some men to indulge in binge drinking and sports betting.

At the time of its abolition, local governments were raking in sh85b annually from graduated tax.

Efforts by government to introduce Local Service Tax and Local Hotel Tax to fill the void left by graduated tax has come to naught as the two taxes fetch only sh16b to local governments a year.

Meanwhile, ministry of local government and Uganda Revenue Authority (URA) are locking horns over agency fees owed to local administrations for collecting Value Added Tax (VAT) in their localities.

VAT is a form of consumption tax. From the perspective of the buyer, it is a tax on the purchase price. From that of the seller, it is a tax only on the value added to a product, material, or service, from an accounting point of view, by this stage of its manufacture or distribution.

Over five years ago, parliament accepted to raise VAT from 17 to 18% on condition that the 1% is remitted to local government as part of efforts to mitigate financial constraints in local governments.

However, URA, according to Mwesige, has "reneged on the gentleman's agreement."

"Last week, we met the Local Government Finance Commission and we agreed that we meet URA over the matter. But if we fail to convince them to remit the funds, we shall have a recourse to the law," Mwesige explained.

Recourse to the law, Mwesige said, would entail "amending the URA Act or Local Government Act to explicitly provide for the remittance."