80% of economy is informal, only 20% of businesses pay taxes
Unlike the others that came before it, this year’s Open Minds Forum was a heated and impassioned event. Held under the theme: “Informal sector; an invisible force with visible impact,” the May 05 public forum in Kampala, organised by the Uganda Revenue Authority (URA), was expected to pit the business community against government officials and the tax collectors. It did not disappoint.
Uganda has a thriving informal sector – up to 80% of the economy, which leaves the burden of paying taxes to the 20% in the formal sector. Many speakers including Joseph Muvawala, the executive director of the National Planning Authority (NPA), said this situation is untenable.
He was applauded when he argued that the informal sector is part of development and the industrial process. It is too big and very important and 60% of skills come from the informal sector, the sector is part of the transition for any economy, he noted.
Earlier in his key note address, Andrew Rugasira, CEO of Good African Coffee, had stated that in a poor country like Uganda, the growth of the informal sector is inevitable due to rampant unemployment. He however added that both sectors need to work hand in hand because they have meeting points.
URA and other economic experts have always said that Uganda does not collect enough taxes because of the many unregistered businesses. Muvawala suggested that dealing with the informal sector should be a “strategic choice.”
As the head of the NPA, the body mandated to chart the development path of Uganda by formulating programmes such as the National Development Plan and Vision 2040, Muvawala understands how the country can achieve the desired goals.
“A government never creates jobs, job creation is a business [activity],” he said adding that Uganda remains the most uncompetitive country in the region. He urged the government to court the informal sector with incentives so that it can formalise. To informal sector players, his challenge was that they should pick up the culture of contributing to national development by paying their taxes.
Formalise for opportunities
On a high profile panel that also included URA boss Doris Akol, Kampala City Traders Association Chairman Evaristo Kayondo, was Edmund Kaziire, the proprietor of Kaziire Health Products, who narrated his story as a trader lurking in informality, and how missing out on many opportunities compelled him to acquire an investment licence and a Tax Identification Number (TIN).
“In 2003, my company was an informal business, I was the MD, procurement manager, human resources manager, cashier,” Kaziire said. At a certain point in time, he had to make a hard decision. He realised he needed to improve the quality of products and to reach the export market.
When he took the decision to formalise, his business grew tremendously and now employs more than 30 professionals. He warned that there are no shortcuts and keeping in the informal sector would make people lose a lot in terms of access to markets.
However, many of the participants laid the blame on URA’s door, saying some of the tax body’s stringent measures are frustrating small businesses. Other participants also blamed the government saying it was a culprit in failing small businesses from formalising. Indeed, keynote Speaker Rugasira warned that the difficulty in registering businesses in Uganda causes preference by many for informality in the economy.
He said the entrepreneurial spirit is present among many Ugandans, but is undermined by many unnecessary obstacles, including the fact that it takes up to 27 days to register a business in Uganda. Rugasira remarked that while Uganda was voted one of the most entrepreneurial countries in the world, the absence of a conducive environment to make business thrive and competitive was a major drawback. The assurance from an official of the Uganda Registrations Services Bureau (URSB) that they are able to register a business in under 48 hours was just laughed off.
Rugasira told an attentive audience that up to 400,000 young people enter the job market annually, but there are only 9,000 formal job places available.
“Difficultly in registering businesses causes informality to thrive. Let’s not look at the informal sector as a problem, but look for and create opportunities to turn the players there to formal business,” he said.
URA Commissioner General Doris Akol suggested that more Ugandans need to pay their taxes if Uganda’s tax to Gross Domestic Product (GDP) ratio is to rise to the level of her regional counterparts. At less than 13% of GDP, Uganda’s tax to GDP ratio is one of the lowest yet its GDP has been growing faster than her regional counterparts. “We need to increase the tax base,” she explained.