HOW IS IT THAT INDIANS PAY MORE TAX THAN US?

The Indian Association has made the claim that their businesses account for 60 percent taxes collected by Uganda Revenue Authority (URA).

It is an amazing figure given that our Indian community does not make up even one percent of our 40 million population.

I asked online how this was so and the knee jerk reaction was to dismiss the figure, argue that they serve as  “tax agents” collecting VAT, withholding taxes and excise duties on behalf of URA and that the direct taxes component is considerably lower.

They have a point.  In 2016/17 URA collected sh12.9 trillion. Of this the largest single individual tax head was Pay As You Earn (PAYE) charged on workers’ salaries, which brought in sh2.1trillion.  The second largest is corporation tax, levied on company profits, which was about a third of the PAYE receipts at sh764b. Given their small size in comparison to the general population the Indians are unlikely to be the highest payers of PAYE.

We know they are in business and it would not be a stretch to assume that they account for a significant proportion of corporation taxes remitted to URA. And through their business too they collect excise duties and VAT on everything from airtime, alcohol, fuel and any number of the products on which government recovers indirect taxes.

So the doubters are correct to point out that in terms of direct taxes the Indian community is not the leading contributor to the exchequer. On the other hand their contributions to the URA through indirect taxes levied by their businesses is what sets them apart.

"Clearly the Indian community in our midst is punching above its weight in its contributions to the treasury...

The knee jerk reaction to shoot down the Indian community’s claims took me aback at first but maybe it shouldn’t. Because to acknowledge that fact would raise the uncomfortable question, “What the rest of us are doing?”

Either we are working just as hard or harder and dodging taxes or we are just not as productive as our Indian friends. I suspect it is a lot more of the latter than the former.

In a roundabout way it would be nice if it was that we are dodging taxes than being unproductive, because then all URA would need to do is widen its reach and tighten its processes and we should be collecting more and more tax.

If you grew to a sizable company and were dodging taxes it wouldn’t take much for URA to find you. 

So then maybe there are thousands of companies small enough to fly under URA’s radar not paying taxes on their profits or remitting indirect tax. Which is possible given our business landscape where less than a handful of companies have successfully transcended a generation. Longevity is a factor in growing businesses, to avoid URA’s attention can only be sustainably managed if you are a small company not supplying government.

It is widely believed that many companies evade taxes. Evading taxes put a ceiling on your company’s development, you can’t for example supply government if you do not have tax clearance. 

Of course there are companies that supply government that evade tax anyway but at least they pay something.

But tax dodgers can eventually get caught and this is often fatal. The owners of one company, a highly visible company, which had been giving the taxman the run around, saw their owners miss millions of dollars because when potential buyers did heir due diligence and found they had huge tax liabilities walked away from the deal. But that was not all, I think the owners exhausted he leverage they were using to keep the taxman away and URA eventually came around to take over the company and sell it to collect its pound of flesh...

So then we have to ask the question what are the Indians doing that we are not doing. One of the doubters finally managed that the Indian businesses are more formal than our own. A double edged sword because while it means their businesses can grow it also means URA can find them easily. 

Unlike our businesses the Indians seem to have decided that paying taxes is a business expense they need to endure to achieve their business ambitions. We would rather just dodge the tax and stay small. We cut our nose to spite our face?

Informality is not a uniquely Uganda problem. Businesses all over the world start informally. They remain so because the cost of going formal is too high in term of money, time and effort. Our raking nearer the bottom than the top of the World Bank’s Ease of Doing Business rankings provides sufficient proof that this the case in Uganda.

It takes 24 days to register a company versus half a day in New Zealand, it cost you 195 hours a year to pay your taxes versus 50 in Estonia, it takes 122 days to get a construction permit versus 27 days in South Korea.

But the Indians suffer all those obstacles and formalise their businesses why don’t we?

There are four reasons to start a business – to feed yourself, to leave a legacy, to sell it or for philosophical reasons.

"The difference between us and Indians is that we normally build businesses to feed ourselves, for lifestyle purposes. The most basic Indian businessman builds a business to pass on to the next generation. The mentality, levels of commitment and organisation needed for either business are worlds apart...

There maybe many other reasons but if we are to examine the reality and learn from it that would be a good place to start looking.