URA should make personal income taxes more progressive by raising PAYE entry threshold
Kampala, Uganda | JULIUS BUSINGE | A new report published by Oxfam, Southern and Eastern Africa Trade Information and Negotiations Institute and other non-governmental organisations has identified gaps related to gender taxation, policy and administration, and that once fixed could boost government’s ability to deliver services to its population.
Titled ‘The Fair Tax Monitor Study or simply FTM’, the report reveals that Uganda has made minimal progress in making the Uganda tax system fair and gender responsive. This is mainly because the country depends largely on indirect taxes – excise duty, VAT, and customs – which disproportionally affect low-income earners, especially women, since they spend a higher proportion of their income on consumer goods for their families.
In addition, Uganda Revenue Authority does not collect and update sex-disaggregated data, which makes it hard to ascertain the gender statistic to facilitate gender analysis.
The report also notes that large tax incentives and exemptions and illicit financial flows drain critical resources that hinder government’s ability to provide critical public services. In FY2019/20, Uganda recorded approx. Shs5tn as incentives.
As a result, under-investment in key sectors that have direct consequence of reducing the unpaid care workload, disproportionally affect women and girls.
But on a positive note, the report found out that Uganda has made commendable progress in promoting gender responsive budgeting in addition to improving gender and equity compliance of the budget.
Jane Nalunga, the executive director for SEATINI Uganda and Daniel Lukwago, the lead researcher for this study said during the launch in Kampala on April 13 that the government needs to walk the talk in line with the findings and recommendations of the report.
The report recommends that the Ministry of Finance, Planning and Economic Development and URA pays attention to issues of fairness, inequality and gender in tax policy-making by accelerating more extensive use of micro-simulation models, so that the potential impacts of policy choices can be better understood.
The report says the government should follow the path recommended by the International Monetary Fund, United Nations and others to respond to the Covid 19-crisis by enacting progressive tax measures that increase the revenue contribution from wealth and corporations to fund social support programmes to cushion the effect of the pandemic.
The report also suggests that URA put in place mechanisms for the collection and analysis of sex-disaggregated data. For instance, when filing income tax returns, the sex of the person filling or owners of the company should include the impact assessments by gender and income category should also be done to identify the direct and indirect effects of taxes/budget choices on poor people, women and vulnerable groups.
In addition, the ministry of finance and URA should make personal income taxes more progressive by raising the Pay As You Earn entry threshold, by raising tax rates of the higher brackets, by introducing additional tax bracket (s) for the highest incomes, by focusing compliance efforts on high-income earners, and further strengthen anti-tax avoidance strategies.
The ministry of finance should also adopt and enforce legislation barring trade mis invoicing, equip URA with up-to-date trade pricing databases to facilitate risk management of the potential for trade mis invoicing.
Government agencies such as the URA, Inspectorate of Government, Bank of Uganda, Office of the Attorney General and Financial Intelligence Authority, should boost their capacity to detect and limit the extent of illicit financial flows.
The report also recommends that the ministry of finance expedites the implementation of the Tax Expenditure Governance Framework to help manage tax exemptions. This should include rules related to tax expenditures to assess the efficiency, impact, and equity of tax incentives and remove them if warranted.
Given the intraregional competition for foreign direct investments is fuelling an unhealthy “Race to the Bottom’ in the region”, tax exemptions and incentives should be handled at a regional level by the East African Community.
The report also notes that the ministry of finance realigns the structure of URA to the changing demands, as well as focus the roles played by different actors, including the URA board, the commissioner general, and the minister of finance, particularly with regard to the framework for supervision of URA.
In the light of the negative impact that Covid-19 pandemic has had on public budgets and revenue collection, the government needs to reprioritise the budget by increasing spending on social sectors (education, health, social protection) and reducing spending on public administration and security.
“Failure to do so hits women harder as they are more dependent on health, and WASH services and carry much larger burden of unpaid care work increase,” the report reads in part.
The ministry of finance should also conduct impact assessments by gender, income and other groups, to identify the direct and indirect effects of taxes/budget choices, paying particular attention to the impacts of both taxes and public spending on the poor, women and vulnerable groups.
Uganda’s tax revenue to GDP ratio is still well below the SSA average (16.5%) and that of its EAC. Based on current performance, it is unlikely that Uganda will meet its target and 16% tax-to-GDP ratio set out in the NDP III and the Charter of Fiscal Responsibility.
The Fair Tax Monitor (FTM) project was started in December 2014 by Oxfam Novib and Tax Justice Network–Africa in collaboration with partners and Oxfam Country Offices, with the overall goal of strengthening the advocacy activities at the local and global levels.