The Government is increasingly turning to indirect taxes to increase revenue, but a new report has found that the move could be widening the gap between the rich and the poor in the country.
Uganda’s tax system is increasingly turning to be regressive, according to Fair Tax Monitor study 2018 by Southern and Eastern Africa Trade, Information and Negotiations Institute (SEATINI) and Oxfam released at Gold Course Hotel, in Kampala on Wednesday.
Indirect taxes are taxes levied on consumption of certain products or services through imposing Value Added Tax (VAT), excise duty and customs duty. These taxes are imposed on producers, but the burden is shifted to consumers, depending on the products supply and demand in the market. Experts say the changes in the prices of goods as a result of a tax can lead to a reduction in consumption or substitution of better quality goods by inferior ones.
On the other hand, direct taxes include taxes on personal income tax (pay as you earn), corporation tax, presumptive tax, rental tax, tax on bank interest, casino and lottery tax on agricultural products. The report says the Government is not faring well in reducing the widening poverty gap among Ugandans through tax policy.
The report faults Government for not having a clear policy and transparent provisions on tax incentives and exemptions awarded to “some companies”.
“Due to absence of a clear policy and un transparent provisions on tax incentives and exemptions, Uganda is losing a huge amount of revenue. According to Uganda Revenue Authority, Uganda lost revenue from tax incentives and exemptions amounting to sh8.4 trillion from 2010/11 to 2016/17, which amounted to 16% of the total tax revenue,” the report says.
“The country has regressive tax systems with high dependence on indirect taxes which contribute about two thirds of the total revenues. Indirect taxes are more regressive since they are based on the value of goods, services and assets rather than the ability of people to pay,” it adds.
Most important in the rise in inequality has been the relative rise in prices of goods and services since the introduction of VAT.
Although painful to the poor, nearly two thirds of locally mobilized resources are being derived from indirect taxes. The impact is that it has left meager disposable income among the populace which has further stretched the poverty figures despite exemption on certain basic commodities by Government.
For instance, findings from the Uganda National Housing Survey 2016/17 indicated an increase in poverty levels from 19.7% in 2012/13 to 21.4% in 2016/17. The latest report means that at least eight million Ugandans cannot afford three meals a day.
Joshua Bitindi, the manager of business transformation at URA said: “There is an information gap in our country. We believe there is a grey area in understanding taxation. When we say indirect taxes are now two thirds of what we pay, VAT was introduced in 1997. What is happening here is 99% what is happening elsewhere.
