How URA's tax reforms changed Uganda's fortunes

By 1990, Uganda's tax revenue stood at a paltry 5% of GDP, while the country struggled to pull itself from the effects of past wars, which had eroded its macro-economic stability.

Revenue at the time was heavily dependent on export taxes, which discouraged exports, although later, this was replaced by import taxes.

A revenue body known as the Uganda Revenue Authority (URA) was then established in 1991, by an act of parliament, to collect all government revenue and facilitate trade in Uganda.

By 2005, a number of tax reforms had been instituted, and revenue collection was on its way to making the country more self-sufficient from complete donor dependency.

"Over the past 25 years, we have seen a number of reforms that have revived the tax system, to a level where we are now respected and recognised in global taxation circles for the efficiency of our tax systems," Dickson Kateshumbwa, the commissioner for customs says.

According to kateshumbwa, the growth in domestic revenue in Uganda has hardly kept pace with the growth of the economy especially the growing expenditure demands.

He says the absolute expansion in the size of the government budget over the years explains the increase in the budget deficit, which is partly financed by external borrowing.

"Therefore, these major tax reforms implemented since the 1990s aimed at addressing these fiscal challenges facing the country. The reforms were directed at improving administrative efficiency and to ensure better taxpayer compliance. They also aimed at rationalizing the tax structure and rates, widening the tax base, reducing exemptions and simplifying tax procedures," he says.

One such reform, according to kateshumbwa, was the introduction of Value Added Tax (VAT) to replace Sales Tax and Commercial Transaction Levy (CTL) in 1996.

VAT is a type of consumption tax that is placed on a product whenever value is added at a stage of production and at final sale.

Subsequently, a new Income Tax Act was enacted in 1997, which broadened the definition of taxable income, and eliminated most discretionary tax exemptions and tax incentives.

"Substantial attempts were also made to modernize and automate customs and VAT administration. In addition, Tax Identification Number (TIN), the Large Tax Payer Department (LTD), pre-shipment inspection and GATT valuation system and the Tax Appeal Tribunal," James Kisaale, the commissioner for domestic taxes says.

In 2005, a new reform was introduced, replacing direct taxes with indirect taxes, to improve efficiency in tax administration, and also expand the country's revenue base.

"These taxes were also collected in a rudimentary way and it was expensive to collect them. Secondly, people hated the idea of tax contribution yet they demanded good service delivery. As such we had to make tax contribution less cumbersome by making it indirect," he explains.

The automation of the tax system, which now allows tax payers to make their contributions through internet banking services, mobile money platforms and a number of other electronic payment platforms in the country, is another land mark in the country's tax evolution.

"This electronic system is expected to eliminate even the little corruption by building tax compliance and winning public confidence through improved service delivery. Making the tax procedures simple and transparent, and educating taxpayers on tax laws and collection systems is now our focus and will enable taxpayers to know what their obligations are towards revenue collection," he says.

To consolidate its e - payment platform, the taxman recently announced a new partnership with Pay Way, an internet-based solution to collecting and managing customer payments, to expand its collection platforms across the country.

According to commissioner general, Doris Akol, the platform is another convenient payment system through which the taxman's clients will file their returns in an effort to further its efficiency

"URA wants to make it easy and convenient for everyone to comply on their taxes, and as such we are keen on improving service delivery especially for those in rural areas and border points.  The development is therefore another milestone for the Authority," she said.

The tax man has also entered memorandums of understanding with corporate entities such as telecom operators, Kampala City council Authority and the Uganda registration services bureau in efforts to expand the tax base.

"Last year we made a resolution to expand the tax register by more than 500,000 new tax payers every year, and we are especially looking at the informal sector," the taxman's publist, Sarah Banage says.

According to Banage, the tax man hopes to expand the tax register, which currently has 780,000 tax payers out of a taxable population of 9 million, through the mass Tax Identification Number (TIN) enrollment exercise, currently ongoing throughout the country.

"The enrollment drive aims at including businesses from the informal sector into the tax bracket. And with tax payment made easy and enjoyable, we hope to see more people on the register who are compliant as well," she says.

She says URA is seeking sh28b to open new offices in 82 districts and recruit approximately 500 more employees as it endeavors to consolidate tax administration.

In a recent Africa Pulse teleconference from Washington, World Bank economists hailed government efforts to expand the tax register.

They said this will partly shield the country from dependence on grants, expensive debt for infrastructure projects.

The tax man, according to Banage, is also undertaking new reforms that will see an end to the repatriation of untaxed profits by multinationals, in order to redeem approximately $ 409m (sh1.4trillion) that is lost to illicit flows every year.

Banage says the taxman will institute new valuation controls early next year, to net untaxed profits, as it looks at achieving its revenue collection target for 2016/17.