Fair Share: A tax system with an equitable tax burden and broad tax base

By Maureen Avako

Uganda has held numerous discussions on a fair tax system, frequently led by CSOs like Oxfam and Seatini, tax professionals, and taxpayers. Some objections to taxes have been through demonstrations with an aim to transform Uganda’s economy from a regressive tax system that disproportionately burdens the poor and does not take gender dynamics into account, to a more progressive and equitable system that aims to broaden the tax base without disproportionately burdening any group of taxpayers.

It is prudent to note that yearly amendments and promulgation of tax laws and reforms have tried to address issues on low tax returns, create an equitable system and bring it in conformity with global norms, however, they create complexity, uncertainty and unpredictability leading to low confidence in the tax regime.

Whereas the tax regime is driven by short-term revenue pressures to meet the deficit budget, it pays little to no consideration to the taxpayer and the visibility of benefits received from the taxes is minimal. Taxes like the Over-Top-Tax on social media that later translated into the 12% excise tax on the internet in addition to the 18% VAT in 2020 have affected the gender dynamics differently as illustrated by UBOS in their 2021 report that revealed that internet usage was lower for women at 5% opposed to men at 8%; it associated this to affordability and an extra tax on the already taxed internet, thus limiting access to information and services.

The 15% excise duty on mobile money transactions is high. Some taxes have been observed to be progressive in sharing the tax burden like the 40% tax of the taxable secondary employment earned by employees where the employee’s employment income exceeds UGX 10 million, following the adage that those who earn more should pay more taxes. However, this is the highest rate in East Africa and leaves no room for an increase if there was a need.

In broadening the tax base, Uganda has a presumptive tax that includes the informal and small businesses. This fiscal year 2023/2024, the tax laws were amended; some provisions will increase revenue if a good implementation system is in place, others may create uncertainty and breed confusion amongst taxpayers and may in turn not serve their purpose and others may reduce on the already trifling tax base.

The Mutual Administrative Assistance in Tax Matters (implementation) Act 2023 will allow for automatic exchange of information and recovery of foreign tax claims and ease implementation and synchronize the tax laws with the already existing company and partnership laws on beneficial owners.

The Income Tax (Amendment) 2023 exempts incomes of prosecutors, ZEP-RE (PTA Reinsurance Company), income of unit trusts at a time when the country seeks to increase its tax-GDP ratio and its tax base. 

With a largely informal sector, it raises questions on who is going to bear the largest tax burden if not those in formal employment and with duly registered businesses and how the government intends to finance its expenditures given the donor funds have reduced.

The Tax Procedure Code Act 2023 waived interest and penalty outstanding as of 30th June 2023 for taxpayers who pay the outstanding principal tax by Dec 31st, 2023; however, the Act also provides for taxpayers not being allowed to provide information during objections that they did not provide during audit/investigations within three years from the date of request. It also raises concern on the duration within which the information requested is to be presented, interference with the right to a fair hearing, and whether it will apply to disputes handled by the Tax Appeals Tribunal under the Tax Appeals Tribunal Act given the Act was not amended or shall it only apply to objections and ADR at URA. 

Uganda introduced the Digital Service Tax at 5% to realise revenue from the digital economy, especially from Multinational companies with no physical presence in Uganda to broaden the tax base; this rate is higher than the African Tax Administration Forum recommended rate. 

There are still some areas of concern when analysing whether Uganda’s tax system is fair because Uganda still has the highest tax regime in East Africa, however, the government of Uganda is trying to make the financing of expenditure domestically based and this may place the financial burden on certain groups of people than others, making the tax system regressive.

It is important that taxpayers be treated equally and receive benefits from taxes paid; it is also important that the government does not become a burden to low-income earners. 

The author; Avako Maureen is a Post Graduate Student Researcher at the Civil Society Budget Advocacy Group. Email: mavako66@gmail.com or Tel: +256 701702723