Amidst Fiscal Challenges, Uganda Grapples with Tax Protests and Calls for Reform
In the heart of Kampala, the clamor of discontent rises as traders voice their frustration over what they perceive as burdensome taxation and aggressive enforcement by the Uganda Revenue Authority (URA). The recent tax protests echo similar sentiments from across East Africa, where small business owners in Dar es Salaam also stood against high taxes and stringent enforcement last year.
The crux of the Kampala protests lies in the implementation of an electronic receipting and invoicing system aimed at bolstering VAT collection. Initially targeted at large businesses, the system’s enforcement has now extended to small and medium-sized enterprises, sparking significant unrest among traders.
With a fiscal deficit of 5.6 percent and a freeze on World Bank funding due to legislative controversies, Uganda’s reliance on local resources has intensified. The URA’s tax enforcement project, while ambitious, raises questions about its impact on the social contract and poverty levels.
Uganda’s tax base is notably narrow, with tax collections hovering below 14 percent of GDP—a stark contrast to the Sub-Saharan average of 18 percent and developed countries like the UK, which collects around 40 percent. The disparity is further highlighted by the fact that only a million Ugandans pay tax out of the 3.5 million registered taxpayers, in a nation of nearly 50 million people.
The informal sector, representing over half of Uganda’s GDP and more than 80 percent of employment, remains largely untaxed. This has prompted the URA to focus on small and medium-sized businesses through the presumptive tax, which contributes a minuscule fraction of tax revenues.
When it comes to raising funds, Uganda’s tax regime faces challenges such as generous tax incentives, difficulty in taxing the affluent, widespread avoidance by multinational companies, and inefficiencies within the tax collection system.
Public perception leans towards viewing the tax system as unfair, especially to ordinary citizens. While Uganda’s personal income tax shows elements of progressiveness, the enforcement of tax laws on wealthy individuals has been inconsistent. This perceived unfairness is exacerbated by tax incentives that largely benefit larger firms, leaving smaller businesses to bear a disproportionate share of the tax burden.
As calls for tax reform grow louder, experts suggest that changes are overdue. Adjustments to personal income tax rates, VAT thresholds, and presumptive tax thresholds are needed to reflect current economic realities. Simplifying business taxation and reconsidering tax incentives for large corporations could yield more significant revenue gains. Moreover, enhancing transparency in public spending could bolster taxpayer morale and compliance.
The path forward for Uganda is complex but necessary. With strategic reforms and a commitment to fairness and efficiency, the URA can navigate these turbulent times and foster a more equitable tax landscape for all Ugandans.
