WE ARE CORRUPT BECAUSE WE DON’T PAY TAXES

In recent weeks, those who have been agitating against new taxes, have argued that the government does not deserve their money because it is corrupt to the bone and it will not be unlike throwing good money after bad.

Last week parliament amended the excise duty act which retained mobile money duty but reduced its rate to 0.5 percent and maintained it only on withdrawals. They also retained the tax on social media services, which had attracted a disproportionate amount of noise, given the relatively few users compared to mobile money services.

When the two taxes were initiated, government projected that about sh400b would be collected. 

The downward revision in the mobile money rates will reduce that significantly.

In July after one month of implementation URA announced they had collected sh27b for both.

The opposers of the new taxes point to poor government service delivery, wasteful spending on questionable projects and the lavish lifestyles of poorly paid technocrats as evidence that their hard earned taxes are going to waste.

"First of all as was reported there are only about million out of 11 million workers paying income tax, hence our low revenue collections to GDP of about 14 percent. The sub-Saharan average is a lowly 18 percent...

In sub-Sahara Africa the highest revenue collector is Lesotho with 42 percent of GDP.

Clearly there are too many people not carrying their weight, yet they earn incomes.

And the opposers may have got it backwards. In order to see an improvement of services and a lowering of corruption we need more people to pay taxes not less.

First off, because we pay so little tax in relation to the total economic activity inside our borders government this year will spend sh800,000 per Ugandan, that's the national budget per Ugandan. Of this sh400,00 comes from our taxes and the rest from loans and grants.

The amount government commits to spending is pitifully small compared to the countries we dream of living in, like Finland where government spends the equivalent of sh40m per citizen or Norway sh107m or even South Africa where it splurges sh77m per person.

And when you break down our budget even further, government has earmarked only sh57,000 per person for health, of this only sh20,000 per Ugandan will actually be spent on health worker wages and medicines. 

Clearly we expect too much from our budget. And this is before we factor in corruption.

It is obvious government is working with too little money, trying to spread it all around and doing little effectively.

"Interestingly if you did a cursory comparison of countries’ revenue collections to GDP and
Transparency International’s corruption index, the argument can be made that the countries which pay the least taxes in relation to their GDP are also among the most corrupt in the world...

And the opposite seems to be true, the countries with the highest revenue levels are the least corrupt.

So on the downside of this possible correlation are the backwaters of the world like Chad, Nigeria, Democratic Republic of Congo and yours truly, Uganda, while on the other side of the pendulum you have Denmark, New Zealand, Finland, Sweden and Switzerland.

It makes sense. If you are a country that to deliver services has to rely on its people for revenue, rather than rely on donor monies or huge commodity exports, maximisation of collected revenues to ensure service delivery will be critical.

If you collect people’s taxes and don’t deliver, your political longevity will be that much shorter. To collect more revenues you not only have to tax people adequately but you also have to make sure more and more people, ideally everybody is paying their dues.

But if you are a country like our own, where only one out of 11 million workers are paying taxes, the political noise that the payers may muster can easily be drowned out by the indifference of the non-payers.

Hence you have a situation where MPS, paid through the treasury, decampaign an initiative to broaden the tax base.

It is true, those few who pay taxes are up to their eyelashes in tax. What is needed is for more and more people to carry the burden.

"Taxes is a political time bomb wherever you go. No one wants to pay taxes even in Finland or Sweden. The difference is that in those countries they have the mechanism and political will to enforce tax laws, compliance is not voluntary...

This is not to say there is no corruption in those countries, but because everyone has an interest in getting more value for their money in taxes, this tempers public officials’ greed. Their officials are not necessarily more morally upright than our goons, it’s just that they know that wages of sin are as good as death.

WE WANT TO GO TO HEAVEN, BUT WE DON’T WANT TO DIE

Wouldn’t it be great if every time we fell sick wherever we are in the country, we could walk into a health facility not have to endure long tortuous queues and still get quality services at the end of the brief wait?

Wouldn’t it be great if when we gave birth to our kids we were assured of a first class education all the way to university – and beyond?

Wouldn’t it be great if in addition to expansive highways we had high speed rail networks and affordable air connections within the country and to foreign destinations?

There is a place like that on this earth.

My friend who visited Helsinki the capital of Finland a few years ago has the best anecdote of the safe country we would love to see. The family they were visiting with ordered a flat screen TV online. On the day they were not home their TV was delivered and since the delivery man did not have access to the home he left the TV on the porch, we call it a veranda. Hours later the family returned home to the pleasant surprise that their TV had been delivered, took it in and installed it.

My friend eight years later, has not yet recovered from the shock that that was possible.

"Of course it was not always like this. The high living standards in Finland and Scandinavia have come after generations of interaction between the ruling elite and the citizenry...

So for example while the average annual government expenditure per citizen is about €10,000 (sh40m) the revenue to GDP collections in Finland stood at about 44.1 percent.

The comparable figures for Uganda are sh800,000 and 14 percent.

It is not rocket science if we want the good life we have to pay for it.

Of course the common refrain is that this government is too corrupt and it is affecting service delivery. The anecdotal evidence flies right in your face and it is hard to refute, so I will be the last to vouch for the integrity of our government.

"But truth too is that government has very little to work with. In effect in every sector of the economy even roads and electricity the resources available to them are hardly enough to do anything effectively.
And to make it worse they are trying to do everything, spreading themselves very thin and doing nothing particularly well...

For instance this year’s health budget comes in at sh1.9trillion or about sh47,500 per person. This is even more pitiful when you consider that of this money the cash spent on health worker salaries and medicine is sh810b or sh20,250 per person per year.

Even allowing for the proverbial corruption government is working with too little money to get anything done.

It therefore beats my understanding how our Members of Parliament can oppose new taxes on mobile money and social media – an effort to rope more people into the tax base and yet complain that government is failing to deliver services and even worse are watering at the mouth to increase their salaries yet again.

The way I see it government has two options neither of which are easy.

Either using the existing resources they decide in five year periods to focus on particular sectors and totally disregard others. So for example they decide that for the next five years we are going to push power and roads, bump their budgets like two to three times and the rest of the departments make do with whatever crumbs are left over. After the period an assessment is made on progress and decision is taken either to continue or choose other sectors.

The obvious political fallout cannot be underestimated.

Or government goes all out, hammer and tongs to collect all the taxes due to it from everybody who is liable. As it is now there about a million people who pay taxes on their income against a total workforce of 11 million.

Understandably there will be gritting of teeth all over the country at this, with opportunistic politicians leveraging it to increase the government’s unpopularity, but somebody is going to have to do it sooner than later.

"Given the miserable numbers the government is spending on every citizen the time of reckoning has long past. To stem poverty and all its ills – population growth, insecurity and disease, the government budget has to grow exponentially. For that to happen we all have to pay taxes....

And as for fighting corruption, how can government guard against corruption when its law enforcement and accountability agencies are not funded?

If we want to go to heaven (live a first world lifestyle), we need to prepare for death (paying taxes).

UGANDA’S EVOLVING POLITICAL PICTURE

This week former Forum for Democratic Change (FDC) party president General Mugisha Muntu announced that he was decamping from the party he helped found because of a difference in opinion of how they should proceed.

Muntu, field commander before he headed the Uganda People’s Defence Forces (UPDF), believes like any good general, you need to build up the structures and capacity of the party if you to have any real chance of wrestling power from Museveni. This does not take away from the work of firing up the base with constant attacks on the ruling party and government.

The other tendency championed by Colonel Kizza Besigye, is to carry the party along by force of will and take on the government head on in the streets and in the media.

"It’s an interesting dichotomy and not unlike the differences by the various fighting forces trying to overthrow the Uganda government in the 1980s...

There was the National Resistance Army (NRA) and its determination to fight a protracted war against the company. Building its capacity unseen in the jungles of Luwero, carrying out opportunistic attacks against government installations for the materiel they would throw up than for the publicity value and avoiding at all cost direct confrontation with the then superior forces of the Uganda National Liberation Army (UNLA).

On the other hand were those like Uganda Freedom Movement (UFM) led by Andrew Kayiira, banking on a speedy victory following the 1980 election, thought they could score some quick hits that would demoralise government soldiers precipitating mutiny and even coup.

The results of either strategy is now history.

It’s the classic case of the tortoise and hare. The plodding, boring tortoise seems out of its depth against the hare with its speed, aerodynamic construction and affable character. In the race the flashy overconfident hare is eventually pipped to the finish by the steady, tenacity of the tortoise.

No need assigning real life players to this analogy. It is clear for all to see.

No sooner had we absorbed the Muntu defection than it is reported that he might be linking up with flavour of the month Robert Kyagulanyi and his People Power movement.

If true, it’s obvious that the marriage is not one made in heaven. Will the measured methods of Muntu seat well with the youthful exuberance of Kyagulanyi? Who will forgo their ambition for the other? Which side will have the upper hand the more structured organisation that Muntu brings with him or the raw, spontaneous, unbridled energy of People Power?

"It’s clear that Muntu has left one fight in the FDC he may very well find again in an association with Kyagulanyi...

But in the greater scheme of things the movement in the opposition is part of a larger dynamic being fuelled by a stuttering economy and rapidly changing demographic.

Earlier this month the United Nations Development Programme (UNDP) released its Human Development Index, which scores countries according to such measures as life expectancy, infant mortality, access health services, education and water – the citizens’ standard of living. Uganda with a score of 0.516 came in 162 out of 189 countries. Never mind that we have improved our score a whopping 66 percent since 1990 – 0.311 when the HDI was first measured.

However what is driving our politics is that even this low score is not evenly distributed. When you account for inequalities our HDI score plummets to 0.370. Meaning that the majority of people are not enjoying the general improvements in the living conditions that blanket statistics like GDP growth suggest.

This is translated into a clamouring for change in our politics by a growing constituency, even for change’s sake.

This last point fits in very well with the changing demographic in the country.

"We now have more than 80 percent of the population below the age of 35, meaning none of these know anything about the “bad, old days”  and they don’t even learn about them in their history classes.

They have grown up in a third wold economy but more exposed than any generation before them, to first world lifestyles. They know better and they are impatient that that becomes their reality. Yesterday...

They have identified the status quo – not just the government, but all authority figures and power structures, as the cause of the current malaise. And they will lurch onto anyone will give them hope that they can overturn it.

This sea change is inevitable and unescapable. Muntu and Kyagulanyi are trying to feed off it. It is already knocking incessantly on the NRM’s fortified walls.

THE RETURN OF THE IPO AND WHY IT IS GOOD FOR UGANDA

Last week pharmaceutical firm, CIplaQCI listed on the Uganda Securities Exchange (USE), the latest initial Public Offering (IPO) since Umeme in 2012.

Also during the week the government announced that they will require all telecommunications companies to list on the exchange shortly.

In neighbouring Tanzania and in Ghana and Nigeria as well the government’s there made it a requirement of their licenses, so Uganda is not reinventing the wheel.

The government here said this would be a way to increase ownership of successful companies by locals as well as retain some of the money that is repatriated to their head offices as dividends.

Listing a company is how the owners of the company get paid for all the hard work they have done in building the said enterprise. It can also be a way for them to raise money, patient money from the market.

"But also for political reasons it can be a way for companies to ingratiate themselves with a critical mass of the public. This is a big deal for investors, especially foreign investors, who can become the target of unwanted publicity just because it is always easy to mobilise against foreigners....

The badgering Umeme received a few years ago when they were wholly owned by British private equity firm Actis comes to mind. After they had turned around the distribution business, locally connected entities started lobbying for their contract to be terminated on the basis of some fuzzy logic about how they won the contract. Thankfully these agitators were beaten off. Actis eventually listed on the USE and sold out entirely.

Interestingly the entity that was lobbying for their ouster mismanaged the small concession they were running and as if that is not enough gave it up altogether. I shudder to think where we would be if they had won their battle to run Umeme.

But I digress (or do i?).

One of the four reasons to start a business is to eventually sell it. The other three being to sustain yourself, to pass it on to the next generation or for philosophical reasons.

If you start a business with the eventual plan to sell it, you will build it differently from a person with a business intended to finance his lifestyle. You will build a business whose value is not mainly derived from you. You will build systems in the business, which will ensure it will continue to survive even thrive without you.

The story of Cipla is interesting in this respect. The Ugandan founders of the original business Quality Chemicals, a drug marketing business out of Katwe, in order to expand into the drug making business paired up with Indian firm CIPLA.

This would not have been possible if Quality Chemicals was not worth buying with a credible market share and systems that could be scaled up to win more market share. An intending buyer of the size of CIPLA for any company be it your chicken farm or coffee farm or even wholesale shop are buying potential future earnings. 

"The prospect of growing future earnings, predicated on a scalable business, is what buyers are looking for...

So companies that come to the USE are those that the market think are viable businesses with healthy future prospects.

This is important for us because the more viable business a country has the better. A country is only as viable the strength of the it’s business community. Because businesses are what unlock the potential of our people, land and capital.

I thought about this two weeks ago when I visited the Goodwill Ceramics Ltd in Kapeka, easily the largest floor and wall tile manufacturer in the country.

For their raw material – 90 percent of it, they use clay from Kanungu, Rukungiri and Karamoja . Trucks had offloaded huge heaps of this clay in the factory’s back yard. I am sure it is a special clay but to the common eye it is just soil. But it has been here with us all along. So why has it taken until the 21^st century for us to employ it meaningfully?

The Goodwill Ceramics plant has the capacity to satisfy this country’s daily requirement of tiles and more, throughout the year.

The years of upheaval aside, the reason our businesses cannot exploit such opportunities right under our feet, is because from inception they are designed as lifestyle businesses. Which is not in itself a bad thing, most businesses around the world are started on this premise. The difference is that the ambitions of our founders do not grow and therefore the business remains stunted or they just don’t know that the fortunes of their companies depends on the visions they habour between their ears.

Of course it’s much easier to manage a small corner shop than a supermarket or a chain of supermarkets. The human resource and capital issues just grow with the company. And some point the founder may be forced to relinquish day to day control of his baby because he has reached the level of his competence and needs to bring in new talent.

"Growing a big company means we are going to have to see our businessmen grow beyond their egos, which given how small our businesses are anyway, are not very big...

Obviously bigger companies employ more people, should pay more taxes but are the ones which will unlock the vast potential of our land.

Shortcuts like government trying to do it itself will fail invariably because governments motives, anywhere in the world cannot support sustainable business development.

Our businessmen have to grow for their businesses to grow. There can be no quick fixes.

So the dearth of IPOs is a true reflection of the sophistication of our businesses and the environment they work in.

KAPEKA: AN UNLIKELY INDUSTRIAL AREA

If the boss of Goodwill Ceramics Ltd is to be believed his products are causing upheavals in the Uganda tile market.

The $30m (sh115b) factory tucked away in Kapeka, about 60 km from Kampala, started operations in April and is already making serious inroads into the local market.

“The feedback we have from the market is that our tile are too hard,” said Goodwill Managing Director Yang Frank with a chuckle.

“That with other tiles they can use simple cutting tools but with ours they need more serious equipment.”

This speaks to the durability of his product.

A straw poll of hardware dealers in Kampala confirms the perception that the tiles are of better quality than those imported from China and the pricing putting downward pressure on tiles in the market.

"The factory has the capacity to produce 40,000 square meters of tiles a day in 200 different variations. They have built up their operations to 28,000 square meters a day. They sell under half their daily production at 12,000 square meters. In storage they have enough tiles to supply all of Uganda for two months...

But this is only one of the establishments setting up in the Liao Shin Industrial park in Kapeka, which covers over five square miles.

Around the corner Ho & Mu Food Technology have just done their initial export run to China of candied dry mangoes and factory manager Majorie Mugenyi is confident of future prospects.

“Our capacity is to process 20 tons daily into four tons of candied dry mangoes. This will be expanded to 40 tons,” she said in an interview, with plans to expand into pineapples, jackfruit and passion fruit.

So far they exported all the initial 180 kg of fruit to China but are looking to Europe, Canada and the region as potential future markets.

The factory was closed for maintenance but she said at peak production they employ a hundred people from the surrounding areas, nine in ten of whom are women.

By the end of the year the industrial park promoters project that ten companies will have come on line, producing everything from vegetable oil, animal feeds, industrial alcohol, electronics and textiles.

At full capacity the industrial park will employ 15,000 people.

It is an interesting snap shot of what form our industrialisation may take.

Looking at the portfolio of industries lining up to take up space at the Kapeka facility, the vast majority are looking to exploit the country’s natural endowments, be it clay in the case of goodwill ceramics or fruit or vegetable oil or textiles.

Yaheye International Investment Group has the capacity to process 3,000 tons of maize annually and for now is processing maize into flour for the domestic and regional markets. It is however planning to triple it capacity and go into the manufacture of animal feeds, industrial starch and alcohol.

But more importantly they are setting up for export and as a consequence the investments being planned for not less than $10m in the park. This is important because if we are going to generate jobs and boost tax revenues we need to think about producing for export. Import substitution has undeniable benefits in saving foreign exchange but producing for exports --- especially food means you have to adhere to international quality standards and produce industrial quantities to sustain the related industries.

Ho & Mu have ten acres of mango, about 3,000 trees, under development, but will still need to reach out to farmers as far afield as Kasese and eastern Uganda for their supplies.

"The sad thing for the existing factories is that they do not have reliable power, despite the reported surplus in production by our dams...

Goodwill Ceramic reported that since their inception in April they had suffered 113 power outages the equivalent of 15 days without power during the period.

Efforts are underway to increase the existing 22kva line to 133 kva, which everybody thinks should come with an improvement in supply but not necessarily reliability.

It is an interesting venture in the heartland of the Luwero Triangle, which if managed well and with proper support from government should see a transformation not only of the area but of the country, as similar parks are set up around the country.

WITH THE ECONOMY WE HAVE TO BITE THE BULLET

The challenge of Uganda is that we don’t have enough money! Surprise! Surprise!

The annual budget is sh32trillion, which means government has committed to spend about sh800,000 per Uganda for this year. On education, health, security, building roads and all other things government spends on. As Ugandans we are contributing about sh400,000 of this sum in taxes with the sh400,000 deficit coming from borrowings – locally and abroad.

I repeat this statistic because when I first broke it down it shocked me to the core. And it still does.

Put in this perspective is blindingly, obvious to me, that the government budget is too small. And secondly that with such a small kitty how is government expected to achieve anything.

I mean they have earmarked sh57,000 for each Ugandan’s health needs and  for our protection they have committed the princely sum of sh53,000 per Ugandan for the whole year.

Putting aside our official’s propensity to dip their fingers in the till, how can anything get done to any satisfactory measure with these statistics?

"This numbers look starker when viewed against our population growth and development ambitions.
As it stands now our population is set to double every quarter century. So it’s 40 million now and will be 80 million in 2043 and 160 million in 2068, assuming the current growth rate continues, which it will unless we get a grip on poverty. A story for another day...

All these multitudes deserve good health, education and other social services as well as good infrastructure and a coherent government.

The World Health Organisation recommends that countries should see health expenditures – both in the public and private sector, of about $84 (sh310,000) per person a year. According to the latest statistics available in 2015 Uganda health expenditure came in at $46(sh170,000), just over half the recommended average.

Using these figures private expenditure on health is about sh117,000 per person annually. Assuming the ratio of public to private health expenditure remains the same government would have to double its budget just to meet the bare minimum requirements.

This in health but similar increases or more are warranted from everything from the gender ministry to Uganda National Road Authority (UNRA) to energy budgets. Just to get us to where we can all live bearable lives.

The next question is, where do we find the money to ramp up our spending?

URA a year or two ago set themselves the task of ferreting all the tax dodgers in the informal sector. We were shocked to hear that among the tax dodgers URA  has its eye on accountants, lawyers, doctors and all those professionals who go into self-employment, they counted them as being in the informal sector.

The recent taxes on mobile money were an attempt to tax incomes that were proving hard to find.

This was probably one of the less radical tax initiatives – despite the howling, this government could have suggested.

There is a lot of money in land. Tax all the land I say. People with idle land will be forced to put it to use or lease or sell it to others who can. With that single stroke we will increase production which in turn will bring in more revenue.

Of course the issue of land is always politically sensitive. So the leader who bites that bullet will either be working themselves out of a job or be ready to pull out all the stops – forget tear gas, to enforce his will.

"The writing is on the wall. These are desperate times – or about to be, and therefore require desperate measures...

We will not be the first.

China’s chairman Mao in a race to industrialise determined that his country needed to produce more steel. In this effort people were required to have a backyard smelter in order to meet the steel production of individual collectives. To meet those quotas people ended up smelting everything cutlery, fixtures and furniture.

The result, this was the beginning of one of the world’s largest steel industries, but the unintended consequence was that in an effort to fire up those millions of backyard smelters, the impact on the environment was so devastating that the repercussions continue to date.

There are no shortcuts.

There will be short term pain and woe onto those living in the era of transition, but as they say there can be no gain without pain.

And it will be an other generation of politicians that will benefit from our sacrifice, because there be no romance without the finance.

OF UGANDA’S GROWING DEBT BURDEN AND OTT

This week African leaders trooped to Beijing, China for the third edition of the Forum on China-Africa Cooperation (FOCAC) .

FOCAC is aimed at strengthening relations between the world’s latest super power and our continent.

A relationship that has accelerated the development of infrastructure – energy, transport and communications on the continent but which has drawn a lot of criticism from the traditional development partners who argue Africa is being sucked into a debt trap.

In the same week, the Uganda Revenue Authority (URA) reported that had collected just under sh30b in the month of July from the new mobile money and social media taxes – sh22b and sh4b respectively.

The two events are related and have caught our loudest commentators in a contradiction.

"The reason China’s influence is growing on the continent is because of the seeming bottomless purse they carry around to finance multi-billion projects in the aforesaid sectors. Projects, which it is in little doubt are badly needed, if the continent is to transition to the next stage of development...

To illustrate it is expected that the new National Cement Ltd and Hima plants in Tororo will require between themselves an additional 20 MW to power their operations. The Osukuru Industrial complex in Tororo, which will house a phosphate fertiliser, sulphuric acid and steel manufacturing plants will need at least 12 MW. Power we scarcely have now.

This is before you factor in that only about 20 percent of the population is connected to the grid.  To connect at least half the population you have to at least double our existing generating capacity of 850 MW.

Similarly in roads we have about 5000 km of paved road but need at least three times that number to catch up with next door neighbour Kenya. And they too have a deficit of paved road.

This great need set side by side with our low revenue collection in relation to our GDP, about 14 percent against a Sub-Saharan Africa average of 16 percent makes it clear that to the extent that our revenue collections are lacking we will have to borrow to finance the things we must do.

The challenge of this government, and many on the continent is that their economies are largely informal, with most workers and businesses outside the tax bracket.

"Seduced by easy donor money – it is easier to fly to western capitals to sign up loans (per diems all around) than to negotiate with population to pay tax, African government have paid lip service to widening the tax base...

And for good political reason.

The recent uproar – concentrated on social media about paying OTT, is a good example. And so have attempts to levy taxes on property, held by a few urban elite. And any attempt to collect more tax for that matter.

Given a choice between antagonising certain constituencies and negotiating loans, governments often choose the latter.

Critics argue of course that the taxes they pay are being swindled by pudgy fingered officials, who then proceed to enjoy their ill-gotten wealth right under our noses.

There is no doubt that corruption is a blight on this government’s record, no matter the pragmatic reasons for letting it run rampant.

But simple arithmetic suggests that we pay so little tax and government in its attempt to do everything, spreads these little monies so thin as to not be effective at doing anything.

The sh32trillion budget this year comes down to spending about sh800,000 per Ugandan for the whole year. When broken down even further the government will spend sh57,000 on each Ugandans health needs and sh53,000 per Ugandan on security.

And that is even before the thieving officials have curved off their pound of flesh.

And how much do we Ugandans contribute to this princely sum in taxes? Sh400,000 per person per year.

"Interestingly the critics of increased borrowing from China are most probably the harshest opponents of any tax changes. They are keen to eat their cake – pay as little tax as possible, while demanding first rate services from government, that is, have their cake....

My two cents on the subject. We don’t want government to tax us more because even with corruption service delivery will improve making it hard to unseat them. And we oppose the increased borrowing from China for the same reason. Other racist sentiments aside.