As the Ugandan economy comes to terms with falling foreign aid and remittances, low global commodity prices and a strong dollar, the Uganda Revenue Authority (URA) has turned its focus to the bustling informal sector, urging them to go formal.
In turn, representatives from the business community have urged government to provide incentives such as simplified registration procedures and progressive fees at the well-attended 9th URA Open Minds Forum at the Serena Hotel, Kampala under the theme: “The informal sector, an invisible force with visible impact”.
Doris Akol, the URA Commissioner General pointed out that increasing the tax base vertically in Uganda is no longer possible.
She said: “We must look at critically into broadening the tax base. The informal sector players are not small or illiterate.” She added: “The informal sector is economically vibrant but unregulated.”
Though the taxman is projected to miss 2015/16 financial year targets of sh11 trillion by sh655b; the bar has been raised even higher in the 2016/17 financial year to over sh12 trillion, this increase in collections is expected from informal businesses.
The URA is estimating the average revenues of small businesses by area, and street in order to formulate tax brackets for them.
The exercise is expected to add 80,000 additional small businesses to the 780,000 long list of tax payers.
An excerpt of the 2016/17 budget framework paper notes: “Domestic revenues are expected to increase from 13.9% of GDP in FY2015/16 to 16.3% of GDP in FY2020/21. The increase in domestic revenue will help to offset the projected decline in external grants, both in the form of budget and project support.”
“In the medium term, tax administration will be a key driver for domestic revenue enhancement. In particular, measures will be introduced targeting sectors that currently contribute a large amount to GDP but little to tax effort (e.g. agriculture, construction, hotels, real estate and education),” it adds.
Andrew Rugasira, the founder of Good African Coffee noted that the informal sector thrives because of many obstacles. He said Ugandans have a strong entrepreneurial spirit, but are frustrated by several requirements and a 27 day wait to formalize their businesses.
“Difficulty in registering businesses causes informality to thrive. Our education system is not serving the job market well. We need less lawyers, more welders and plumbers,” he said.
“It is important for business people to form associations’ to influence job creation policies, and to generate ideas that government can use,” he added.
Joseph Muvawala, the executive director of the National Planning Authority (NPA) urged informal business owners to go formal as a means of boosting the creation of jobs in Uganda.
“An economy with a 1% increase in GDP ideally should create 1,000 jobs however in Uganda; we create just about 400 jobs,” he said blaming the widespread informality.
“How will you make us accountable as a government if you don’t pay your taxes?” he asked rhetorically. “We like to talk about expenditure but not revenue. The only way citizens can make us in government accountable is by paying taxes.”
Dr. Edward Kazaire, the proprietor of Kazire health products pointed out that going formal will secure the future of informal businesses. He added that if Uganda does not have a critical mass of tax payers, then the country will go without critical services such as hospitals, and good roads.
“Swallow the bitter pill and formalize your business. There is no secret to growing your business more other than formalizing it. Take the decision and move ahead,” he urged the gathering. “The journey is sour but the benefits are sweet. Upgrade your business from informal to formal,” he added.
He noted that going formal enables a business to access to public infrastructure and services, to make enforceable commercial contracts, and to access to government subsidies and incentives, including procurement bids and export promotion packages.