DEVELOPMENT: EVERYBODY WANTS TO GO TO HEAVEN BUT NO ONE WANTS TO DIE

Last week downtown Kampala was shut down for a day or two as traders protested Uganda Revenue Authority (URA) methods of revenue collection.

As I understood it the new Electronic Fiscal Receipting & Invoicing Solution (EFRIS) leaves little room for discretion and has a long memory, which can make some people uncomfortable. EFRIS has then compounded a long standing complaint about invoicing, and how URA uses its own set of values to determine taxes on goods imported for instance. Another long held gripe is when the trader is liable to pay tax on a product or service sold at the point of invoicing or when cash actually changes hands.

You have to sympathise with this last one. Imagine delivering a service to government, you invoice today and are immediately liable for the tax but government pays you years later, this can wreak havoc on your cashflow situation.

In the same week the Bank of Uganda released its state of the economy report, which for me had some interesting revelations.

First, that in the first six months of the financial year, July/June our interest payments grew 17.4 percent, growing faster than revenue collections which grew by 12.4 percent, essentially that while government revenues are growing they are not keeping pace with the rate of growth of debt repayment. Interestingly most of the debt repayment is for local debt, mostly contracted through monthly government paper auctions. This is a double edged sword.

This was necessary as net external funding for the budget fell off a cliff to minus-sh122.3b compared to sh1,352b in the previous year. For any number of reasons external lenders are not coming through with their pledged funding, forcing government to look more to the domestic market. And even then they could only do it within reason, with net domestic financing only increasing by 6 percent.

And secondly that back ground probably explains why domestic arrears repayment collapsed by 73 percent to Sh175b from sh651b, which was also a pittance, in the previous year.

The recent friction between traders and URA, reminds me of the VAT strike of 1996, months after it was introduced. Then like now, one has the sense that not enough sensitistaion was done and traders going about their business as usual have found themselves on the sharp end of URA’s pressure to collect. But as said earlier, then as now, there is a section of people used to dodging taxes realizing that their space for maneuver is becoming increasingly squeezed.

The most sustainable way for an economy to develop is if it does this under its own steam, using resources generated internally, more than relying on foreign charity.

In Uganda it seems we are on the right track as revenue collections grow and government has built a credible mechanism for raising funds locally.

But to build up revenues more of the economic base has to be taxed. New taxes will always be a source of discomfort, as will the case be if you haven’t been and now have to start paying taxes.

Workers in formal employment forgo at least 30 percent of their income to the tax man. But out of a working population of about 11 million only about two million pay taxes on their income.  Pay As You Earn (PAYE) accounted for 17 percent of revenues collected in the first half of this year.  Imagine if half the workers of Uganda paid their taxes and doubled this percentage?

People are quick to argue that the wastefulness of government is a disincentive to paying taxes. But those are excuses. It is also possible that law enforcement is so starved of resources they are fighting an uphill battle to clamp down on wastefulness. It is not in doubt that they are under resourced.

"The claim of a lack of political will is there, but unless we want arbitrary arrests and convictions directed by the politicians, there is no way around the resourcing of the law enforcement agencies, to have a long lasting impact on the fight against government waste and corruption...

So we have to pay our taxes.

We point at places like Sweden that have nice infrastructure and working social services, but they pay 43 percent of GDP in taxes. In Uganda we are only touching 14 percent.

And finally while we mobilise more and more resources via government paper – to bridge the gap between our expenditure and tax collections, it is happening at the expense of the businessman. The treasury bond coupon rates are currently in double digits, which means it is impossible to have lending rates lower than that.

The theory is that if more of us paid our taxes government would have less appetite for borrowing locally, lowering bond rates and forcing banks to lower their rates to borrowing public. It is all connected.

"An argument against paying taxes will always be a popular one, but if a more developed country is heaven, while we all want to get there one day we do not want to die – pay our taxes...