On an alarming note, Tax experts and investigations by a local national media team have uncovered a significant number of individuals earning substantial taxable incomes evading their tax obligations. This evasion has shifted the tax burden disproportionately onto lower-income earners who, despite being within the taxable threshold, are unable to avoid or evade paying taxes.
With the Financial Year 2024/2025 budget set at UGX 72.1 trillion, concerns about the realization of the promises within this ambitious budget are high. The budget, which will be unveiled by Finance Minister Matia Kasaija, relies heavily on domestic revenue and borrowing, highlighting a critical reliance on taxpayers.
Out of the UGX 72.1 trillion budget, UGX 32.3 trillion, approximately 45%, is expected from domestic revenue. Budget support and domestic borrowing will contribute UGX 1.3 trillion and UGX 8.9 trillion respectively, with domestic debt refinancing accounting for UGX 19.8 trillion, about 27.5%. This dependency on debt, which funds 55% of the budget, poses a risk of increased debt distress and vulnerability to a debt crisis.
Minister Kasaija emphasized reliance on indirect taxes due to their ease of collection, inadvertently imposing a uniform tax burden across different income levels. Employed individuals are taxed at the source, unlike companies that exploit loopholes. One prevalent scam, the Value Added Tax (VAT) fraud, involves companies issuing fictitious invoices to reduce VAT liability. The Ministry of Finance Permanent Secretary, Mr. Ramathan Ggoobi, estimates an annual loss of UGX 3-5 trillion due to VAT fraud and non-compliance.
The Uganda Revenue Authority (URA) investigations revealed a stark disparity between customs duties and income tax payments. For instance, four individuals who paid over UGX 1 billion in customs duties showed only two paying income tax. Similarly, twelve individuals who paid over UGX 500 million in customs duties did not remit any income tax. This highlights how wealthy individuals thrive in informality, often transacting in cash and avoiding bank deposits or proper bookkeeping.
Multinational corporations across various sectors often underpay corporate taxes, contributing to significant revenue loss. According to a report on illicit financial flows, over UGX 2 trillion is lost annually due to tax evasion and money laundering by multinationals. These activities not only harm the economy but also deprive the National Treasury of essential revenue.
Corruption remains a pervasive issue, with civil society organizations (CSOs) noting its impact on the provision of public services. The World Bank, in 2022, withheld a $1.5 billion loan to Uganda due to corruption concerns and the Anti-Homosexuality Act (AHA). The European Union also reduced development aid by 20%, and the US government withheld funding for various projects, citing fiscal irresponsibility.
A report by URA titled "Boosting Revenue Collection through Taxing High net worth Individuals" reveals that wealthy Ugandans, including civil servants and politicians, often evade taxes despite substantial incomes. These individuals typically have modest official salaries but amass significant wealth from unexplained sources.
Uganda’s growing informal sector, which accounts for nearly half of the economy, poses a significant challenge for tax collection. Informal businesses, often unregistered and without proper accounts, operate outside the tax radar. Professionals such as lawyers, accountants, and engineers running private businesses are among the biggest tax evaders.
Tax incentives and exemptions aimed at boosting employment have not met expectations. A Value for Money Audit Report revealed that out of 36 companies receiving incentives, 22 performed below the 50% employment threshold. Over the past year, UGX 1.4 trillion in taxes were waived, with UGX 1.2 trillion under the Gazette by Parliament and UGX 118.5 billion in direct waivers by the Finance Minister.
As Uganda gears up for the implementation of the FY2024/2025 budget, addressing tax evasion and ensuring fair tax distribution remains crucial. With substantial revenue lost to fraudulent activities and the burden falling on lower-income earners, the government faces significant challenges in achieving its fiscal goals. Strengthening tax compliance and tackling corruption are imperative for sustainable economic growth and
