Uganda's tax system is in the spotlight again, as it emerges that the country could lose up to Ush2.7 trillion ($730 million) in tax arrears that government has failed to pay on behalf of contractors.
The amount, which is now close to half of the national budget, accumulated between 2013 and 2018.
The Budget Framework Paper presented by the Ministry of Finance reveals that the taxman lost at least one trillion shillings in waivers and incentives in the 2013/14 financial year alone.
Arrears are normally awarded at the order of well-connected politicians and business persons who arm-twist the Uganda Revenue Authority (URA) to bypass procedure.
“These are taxes that contractors owe URA but because the government wants to reduce the costs of projects like those in the construction sector, it says it will pay, but then it does not pay because there is no money,” Deputy Secretary to the Treasury, Patrick Ocailap told The EastAfrican.
The ballooning tax arrears have caught the attention of Parliament’s National Economy Committee that scrutinised the Budget Framework Paper 2019/20 as presented by the Finance Ministry.
The committee observed that the arrears were growing and by the end of 2017/18 financial year had reached Ush2.7 trillion ($730 million).
“This is worrying given that Uganda’s revenue efforts as measured by the tax to GDP ratio have stagnated at about 14 per cent,” reads the report.
“The government is willing to pay the arrears but the money has not been provided for in the budget. Normally, we put the taxes in arrears and when the government fails to pay, we write them off,” said Mr Ocailap.
In 2018, URA Commissioner General, Doris Akol, said the institution would write off tax arrears amounting to Ush400 billion ($108 million) owed by government.
An additional Ush200 billion ($54 million) was also not collected from Uganda Telecom upon a directive by the president who preferred that the debt be translated into government shares in the company.
Uganda’s tax efforts have not been matching the economic growth. In the previous year there was a significant shortfall — while URA was given a target of Ush15 trillion ($4.7b), it realised a shortfall of Ush556 billion.
The revenue collection is also trails Ethiopia, Kenya and Rwanda, which all have an average of 16 per cent of GDP against 14 per cent for Uganda.
The report indicts the government for shielding contractors who should ideally meet their tax obligations on the contracts for which they are paid.
“The accumulation of tax arrears has been caused by the failure of the government to pay suppliers of goods and services. There are also instances where the URA is directed to release goods before taxes are provided,” the report adds.
MPs want URA poor tax collection investigated. In 2018/19 budget, the URA was allocated Ush331 billion.
“The government will be required to implement a robust revenue mobilisation strategy to improve collection. The failures of our revenue efforts have significantly overstretched the country’s capacity to service its debts,” reads the report.