This week The National Social Security Fund (Amendment)
Bill, 2019 finally came to parliament for debate on its way to becoming law.
The report on the vent kicked up a storm among the
chattering masses over one provision in the law which will have savers benefits
taxed when they receive their retirement benefits and not when they contribute.
It caused an uproar because current savers are mostly unaware
that they are taxed as they contribute now, so the proposed move to tax the
benefits when they receive them was an unpalatable proposition.
They ignored or were more likely unaware, that in the
proposed law they will not be taxed when they contribute.
Interestingly under the new law savers will collect more money than they would under existing circumstances but government too will collect more tax...
Assuming a million shilling salary for 30 years at a 10%
annual interest under the current regime saver will collect sh301m, while government
will have collected sh67m along the way. Under the new the same saver will
pocket sh345m but government too will see its collections more than double to
sh143m.
However, there is an interesting catch. If the saver pulls
out all his savings at 55, the statutory retirement age, he will be liable to
pay the whole tax due to government. But if the saver can hold on till 60 he
will get all his contributions plus interest and not be liable to tax.
On a macro level this amendment could not have come too soon.
In fact it’s probably a decade late.
The current NSSF law was enacted in 1985 and was probably a
visionary document for its time. Proof of this is that our NSSF is the largest
social security fund in the region despite many more years of stability in our
neighbours Kenya and Tanzania.
However, it has been long overdue for an overhaul seeing as
national savings have stuck stubbornly to just about 10% of GDP for at least 15
years now.
At an NSSF news conference this week the Fund’s CEO Richard
Byarugaba reported on the lopsided nature of our savings which are skewed
unsustainably towards short term money. Money held in our financial system for
less than five years accounts for just over 60% of the total. Long term money
which is the real driver of development accounts for about 37%.
In more serious economies those figures are the other way
around.
This inversion of our saving habits is a major reason why
lending rates are high in this country. If the banks had more long term funds
they would scrambling to shovel that money out of the door and according to the
laws of supply and demand lending rates would fall.
This bias has a historical background. Our over reliance on donors for development financing meant there was none to little incentive to try and develop long term savings. But as we have disagreed on our development priorities and the donors have turned off the taps it has become critical that we mobilise our own resources.
If you were central planner like the Ethiopians, you would
wake up one morning and order every working Ugandan surrender a greater portion
of their income to beef up national savings. Which may at first have other
people cheering at the foresightedness of the leadership it would be
unsustainable and susceptible to abuse and evasion.
With a bit more intelligence you can convince, even seduce,
your people to part with a few more shillings.
The new bill speaks to the latter rather than former
approach.
NSSF believes that if implemented appropriately we can see
our national savings rate shoot up to as much as 40 % in 30 years. Then and
only then do we take control of our development agenda.
We have said it many times before, as a country we are poor
because we have failed to aggregate our resources, be it land, human resource
or money. We fail because we are not putting in place the mechanisms to enable
this.
Imagine if government had left it to our own devices to save
for our retirement, how many of us would put aside five percent of our gross
income, leave alone 15% and not touch it for the duration of our careers? It is likely
there are no hands up in the room.
Despite the hoolah balooh I would pay good money in the not
so distant future, to be around the hecklers when their NSSF check lands in the
account – taxed or not.
