The government’s latest budget proposals show that the country has come to another cross roads in its economic journey.
Government has announced a raft of tax measures, most unpopular (are taxes anything else), many punitive ad some just outright regressive and bad ideas. You can feel in the boxes depending on where you stand.
"The net import of this large swathe of new taxes, arguably the most extensive since they introduced Valued Added Tax (VAT) in 1996, is that it signals a new urgency for revenue, which while long overdue threatens to put the speed bump on much needed economic growth...
The new taxes do not indicate a widening of the tax base, which is what observers have been urging for years, but lays a larger burden on existing tax payers.
It was incredible when a government official argued that Uganda’s tax to GDP is low and so the additional taxes are not overburdening the population.
There is reason why collecting more taxes was not an issue a decade or so ago. Then we were content to just let the economy’s momentum increase taxes year on year without being innovative or looking beyond existing tax payers. Then too we still had a very cozy relationship with western donors who were falling over themselves to fund our poverty eradication plans.
With the sudden realisation that we need to rump up our investments in infrastructure significantly, the same western donors reluctant to help and counselling that not only can’t we afford those plans but that we don’t need all that electricity or kilometers of paved road, we have had to turn to China, whose money doesn’t come cheap.
So the new debt, not on concessional terms, has saddled us with new obligations and hence the need for more taxes.
The problem was that while our bureaucrats were lulled to sleep with poverty eradication money, we forgot to enable the productive sectors of the economy – agriculture and industry, whose increased economic activity we would tax to support our development ambitions.
So now the need is on us and we have nowhere to look than the less than a million actors who have, and continue, to support the budget.
In our desperation we are going to tax mobile money transfers, reinstate corporate tax on SACCOS, add sh100 on every litre of fuel and tax social media users. All these are taxes on enablers of economic activity, likely to slow the activities – even incentivise under the table behaviour.
In a related development we want to prevent land developers from charging rent in dollars and put a cap on how much they can increase their rents on an annual basis. Again a classic case of killing the goose that lays the golden egg.
Granted, tenants are often treated shabbily by their landlords. The landlords get away with it because the tenants are not aware of their rights and how to enforce them and because there is still a deficit of quality rental space, meaning despite the progress in the last few years it is still largely a sellers’ market.
And this is the cross roads we find ourselves at.
"Government has to make a decision either to stop throttling the enablers of economic activity by piling more taxes on them. By restraining itself these avenues will generate more economic activity that it can then tax using the plethora of taxes it has its disposal...
Or government can maintain its current course of grabbing at everything, the eggs, the chics and the chicken, regardless of the long term ramifications of this action.
If government really wanted to collect more taxes very quickly they should follow India’s route. Demobilise all notes above sh10,000 and when the usual suspects turn up with their unaccounted for billions slap income tax on them, if they can’t justify that income.
That should be good for a few hundreds of billions of shillings. Pap!