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Strengthen existing taxes; Do not create new ones

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Strengthen existing taxes; Do not create new ones

Ugandans against phone use tax

Ugandans against phone use tax

The passing of the 1% tax on every transaction made by phone users on mobile money is a slap in the face of poor Ugandans. It is only going to sail Uganda into a queue of helpless citizens. While banks are expensive compared to a mobile money system, it is now clear that mobile money service is going to lose the essence of its initial creation.

It was basically created to help the poor who are non-bankable by having cheap banking services, this is a form of micro finance. Slapping such a tax on it is instead a route to worsen the situation.

Similarly, social media which is a leisure parent for the poor Ugandans especially the youths is likely to lose its significance come 1st/July/ 2018 with the new financial year.

Today, youths use social media to advertise what they do to earn a living. Not only this, but they also use it to network with colleagues to find a path of finding jobs. All these opportunities are likely to be reduced by this killer tax. Imposing UGX 200 daily on each simcard which is used to access social media would mean cutting off communication for many.

It’s a pity to telephone companies, the sales for airtime, mobile phones and mobile money transactions are likely to go down. We would say, the imposition of these taxes would increase Uganda’s tax base but the challenge is, you cannot expand a tax base with leaking loopholes.

Other than introducing new taxes, emphasis should be put on the existing tax system to yield the set domestic tax revenue. The revenue performance report for FY 2016/2017 showed that the cumulative domestic collections were UGX 3,506.73 billion in the first six months of the financial year with a surplus of UGX40.13 billion.

In fact, the performance was 103.7%. Is it a taboo to use the surplus revenue and also collect taxes from what would have been evaded so as to save the poor Ugandans from new taxes which are now becoming like a song?

In the recent report on the Monthly Performance of the Economy-March 2018 by the Ministry of Finance, Planning and Economic Development, it was revealed that the tax revenue collections were UGX 1,163.6 billion against the target of UGX1,209.9 billion. The Ministry argued that, this was as a result of the shortfalls in both direct and indirect tax revenues which amounted to UGX22.9billion and UGX53.7 billion respectively.

Why the effort should be on strengthening the existing tax system?

Recently, the URA estimated that between 2015 and 2017, the actions of VAT evaders resulted in a loss of UGX 200 billion in tax revenues. It was noted that, the government has managed to recover UGX 60 billion of the lost tax revenues from evading companies.

The list of the evading companies had 148 companies with 93 being operated by foreign interests and at least 90 of those being from China. Therefore, it implies that only 55 (37.2%) of the companies that evaded the taxes are operated by local investors and the remaining 62.8% by foreign individuals. Efforts should be put on foreign firms to pay taxes evaded together with penalties due.

Slapping Ugandans with new taxes implies that they are paying and compensating for the taxes evaded by foreign investors.  In the same vein, last week it was shocking when K2 telecom was found to be in a debt of Pay As You Earn (PAYE) amounting to over UGX 77.8m and also a local excise duty of UGX 17m making a total tax debt of UGX 94.8m.

If this was tax protected from being evaded, URA wouldn’t look for avenues of introducingnew taxes. Whether the majority of the tax evaders are local or foreign investors, the effort should be geared towards strengthening the existing system to bridge existing gaps other than creating new taxes that oppress the poor citizens.

Let URA focus on strengthening the existing tax systems for instance, emphasis on customs points to reduce international tax evasion, monitoring of corporate tax collection and property tax in addition to encouraging people to register and pay VAT. This will reduce on the rate at which new taxes are being introduced in the poor country.

The Author Kiberu Jonah is a Tax Consultant and Lecturer at Muteesa 1 Royal University. jonahkiberus@gmail.com

 

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