With an imperative to uphold fiscal stability and meet budgetary commitments, the Ministry of Finance has emphasized to the tax collections body, the Uganda Revenue Authority (URA), that it will not tolerate any deficits in revenue collection going forward.
URA was making a presentation during the Workshop on the Review of the resource envelope for the financial year 2024/25, organised by the Ministry of Finance, as part of the preparations for the next financial year budget.
According to the performance of the economy monthly report for December 2023, released by the Ministry of Finance on January 17, 2024, domestic revenue collections in December 2023 amounted to Shs 3.059 trillion shillings, which was against a target of Shs 3.453 trillion, implying a shortfall of 11.4% of the target as both tax revenue and non-tax revenue were short of their respective targets for the month.
“Tax revenue collections amounted to Shs 2.902 trillion against a target of Shs3.268 trillion translating into a shortfall of Shs365.79 billion. All the major tax categories registered shortfalls during the month,” the report reads in part.
While making the presentation at the Workshop, URA Commissioner General, John Musinguzi Rujoki, said the Authority is focused on mobilising all the revenue required to sustain this country towards economic independence.
Rujoki reported a consistent growth in revenue by over 50.48% from Shs. 16,751.64 billion in FY 2019/20 to Shs.25,209.05 billion in FY 2022/23, and urged the government to continue investing in IT solutions and other innovations to “maintain this momentum.”
Every financial year, URA is given a target of tax revenue collections, which it should achieve in relation to the national budget of that fiscal year. At times, URA fails to hit the target.
For instance, the budget estimates for the 2024/25 financial year is 52.7 trillion shillings. Out of the Shs 52.7 trillion, government plans to mobilize 29.9 trillion in domestic revenue. URA will be tasked to collect Shs 27.7 trillion (93%) of the domestic revenue collections.
Government often sets the target for URA after summing up the non-tax revenues and finances received from donors in form of loans and grants.
Criticism and sole blame often targets the URA for perceived underperformance in tax collection.
However, some analysts argue that Uganda has a structure of the economy, where tax revenues are not speaking to the reality of supporting the entities that grow the economy, for the government to tax more.
A big portion of Uganda’s revenue collection goes to debt servicing. For instance, a whooping 17 trillion of the 52.7 trillion shillings budget for the 2023/24 financial year was allocated to debt repayment, taking the biggest chunk of the budget.
Additionally, Uganda spends huge sums of its budget on areas that are not taxed, which further complicates the tax man’s efforts to hit the revenue collections target.
TAX TO GDP RATIO
Despite the rise in revenue over the years, as reported by Rujoki, government is worried about a stagnant tax-to-GDP ratio and occasional deficits in tax collections by the URA.
The tax-to-GDP-Ratio ratio represents the percentage of tax revenue (both direct and indirect taxes) relative to the country’s total GDP.
It provides insights into how effectively a government manages its economic resources through taxation.
A higher Tax-to-GDP-Ratio indicates, that a country collects a substantial portion of its economic output as tax revenue.
It reflects the government’s capacity to fund public services, infrastructure, and other essential expenditures.
Countries with a higher ratio often have more robust fiscal systems.
Rujoki said that although Uganda’s tax to GDP ratio is 14% which is below the Sub-Saharan Africa average of 16%, URA’s target is to improve the tax to GDP ratio to between 18% to 20% in the short to medium term.
Meanwhile, Rujoki said the tax register has grown by 154.96% from 1,594,118 in FY 2019/20 to 4,064,432 taxpayers by half year of FY 2023/24 courtesy of issuance of instant TINs and use of third party data from Umeme, National Water and Sewerage Corporation (NWSC), National Social Security Fund (NSSF), Uganda Registration Services Bureau (URSB) and KCCA.
According to the Ministry of Finance, issues of concern, which the government is addressing, include: the large informal sector leading to a narrow tax base, poor tax-paying culture, corruption, abuse of tax incentives by investors and integration of government systems among others.
The Permanent Secretary and Secretary to Treasury, Ramathan Ggoobi, pledged total support to URA to get the required human resource and also reiterated the need for standardisation of data for planning and resource mobilisation.
Ggoobi called for the improvement of the ability of the URA to use big data to detect tax evasion and grow the tax register.
