Uganda, as a developing country, has been facing persistent challenges in generating enough revenue to meet its financial needs. In order to address this issue, the government has been contemplating the introduction of more taxes on businesses in the hopes of boosting its revenue streams. However, this move has sparked a debate among policymakers, economists, and business owners on whether increased taxation will indeed solve Uganda’s revenue shortfall or potentially drive businesses out of operation.
Recently, the State Minister of Finance in Charge of General Duties, Henry Musasizi, tabled before parliament five tax sets of bills, namely the Excise Duty Amendment Bill 2024, the Stamp Duty Amendment Bill 2024, the Income Tax Bill 2024, the Value Added Tax Bill 2024, and the Tax Procedures Amendment Bill 2024, with the aim of covering the revenue shortfall and cutting down on borrowing.
For any developing country like Uganda, the ability to collect taxes is central to a country’s capacity to finance social services such as health and education, critical infrastructure such as electricity and roads, and other public goods. Therefore, by expanding the tax base and increasing tax rates, the government can collect more revenue to support its budgetary requirements and promote economic growth.
Conversely, the proposed tax hikes could pose serious negative consequences for the economy. Moreover, higher tax burdens may discourage investment, stifle entrepreneurship, and lead to job losses as businesses struggle to absorb the increased costs. Additionally, raising taxes indiscriminately could drive some companies out of operation, thereby reducing overall economic activity and ultimately undermining revenue collection efforts.
It is therefore essential for policymakers to carefully weigh the potential benefits and drawbacks of introducing more taxes to address the country’s revenue shortfall. Finding a balance between raising revenue and maintaining a conducive business environment is crucial to ensuring sustainable economic growth and development in Uganda.
According to Bank of Uganda, the shortfall in tax revenue is likely to force government to do more domestic borrowing, which in the end will lead to increase in taxes as government tries to collect resources to cover the deficit budget. However, for the government to be able to address the revenue shortfall, it intends to do so through the new taxes it plans to introduce, which may not go down well with the tax payer as it will likely weigh them down with the hiked taxes and eventually throw them out of business.
This may, however, not be the only solution to solving the revenue shortfall. The government can look at other factors for improving the revenue shortfall, aside from introducing and imposing more taxes, like correct tax administration done appropriately by the Uganda Revenue Authority (URA), the body mandated by the government to assess, collect, account for, and provide advice to the government on matters of policy relating to all revenue sources.
Secondly, URA should closely monitor tax compliance, which involves filling, payment, and reporting, by making sure businesses prepare their financial statements correctly and are audited by external and independent certified public auditors to give a true financial standing of the business and to also make sure tax payers understand the kind of taxes they are paying for. Unfortunately, URA has failed to effectively educate tax payers on these factors, which has led to a loss of revenues collected.
Also, the government should walk the talk when it comes to fighting corruption. Corruption in Uganda is characterized by grand-scale theft of public funds and petty corruption involving public officials at all levels of society, as well as widespread political patronage systems.
Cutting down on parliament expenditures, other government bodies, and also reducing the recruitment of unnecessary new employees in the government’s budget could help in bridging the gap in the revenue shortfall. For instance, the recent recruitment of 2000 assistant RDCs was not necessary since there are already deputy RDCs.
Uganda is said to have one of the best policies in East Africa; however, its implementation is lacking, as it faces crucial challenges in delivering inclusive infrastructure, quality health service delivery, sustainable education, employment, and housing, among other things. One notable, very good policy that failed to be implemented is the banning of kaveras.
All in all, introducing new taxes to solve the revenue shortfall can be a short-term solution, but in the long run, its effects will be far-reaching and will trickle down to the ordinary citizen. Policymakers should assess the potential impact of increased taxes on businesses, consumers, and the overall economy to ensure that the tax measures are implemented effectively and fairly.
