Kampala, Uganda – Uganda’s Commissioner General John Rujoki Musinguzi has a difficult job collecting taxes from companies and individuals who remain affected by the COVID-19 pandemic.
His supervisors at the Treasury Department have set goals for him and don’t seem to care much about the environment in which he operates.
In FY 2020/21, which has just ended, Musinguzi and his technical staff were only able to achieve net sales of 19.2 tn Shs, a growth of 14.99% compared to the previous year. However, this is below the target of Shs21.6 trillion.
The tax authority has attributed the revenue shortfalls in recent years to a bad economy and more recently to the COVID-19 lockdown measures.
It closed the 2019/20 financial year with a deficit of Shs 3.6 trillion; then in FY2018 / 19 the shortfall was nearly Shs 700 billion. In the 2017/18 fiscal year the deficit was Shs 659 billion and in the 16/17 fiscal year it was Shs 377 billion.
However, senior URA executives speaking to The Independent described the performance for the fiscal year just ended as “very good” as they managed to withstand difficult economic conditions [Covid-19] Environment during the period.
The tax authorities published an estimated tax rate of 12.99 percent, which corresponds to a growth of 1 percent. In real terms, this reflects sales growth of Shs 2.5 billion.
“This is the highest growth seen in the past four years,” Musinguzi said at the year-end press conference held on July 15 at the tax authority’s headquarters in Kampala.
“It is important to note that this was the Parliament-approved target before the effects of Covid-19 hit, and macroeconomic variables that affect revenue, such as GDP growth, were projected at 6%, but in the end.” GDP growth for the financial year was 3%. “
Domestic income amounted to 12.14 trillion in FY 2020/21. Shs, which recorded a growth of 13.71% (1.4 trillion Shs in real terms) compared to FY 2019/20. However, the collections were below the target of about Shs14tn by Shs1.8tn.
Custom revenue collections were Shs 7.5 trillion versus a target of Shs 8 trillion, a significant growth of 16.43% (Shs 1.1 trillion) compared to fiscal 2019/20. However, the collections were 495 billion Shs below the target.
In the same reporting period, 71% of sales were generated in the top 4 industries; Wholesale and retail sector, which made the largest contribution, at Shs5.7tn (29.43%); manufacturing industry with Shs4.4tn (22.70%); Information and communication sector 2.1 tr. Shs (10.48%) and the finance and insurance services sector contributed 1.6 trillion. Shs (8.39%) at.
There were also increases in sales in key sectors such as manufacturing with 27.52%, information and communications industries 25.73%, wholesale and retail 19.13% and financial and insurance services by 5.55%.
However, hotel and restaurant revenue declined 37.38%, education 10.35%, arts entertainment and leisure 31.39% as business slowed amid the COVID-19 pandemic lockdown.
Revenue collection in the EAC block
URA had the highest year-over-year sales growth (14.99%) in the East African Community. Tanzania’s collection in FY 2020/21 was 0.1% less than last year.
However, the financial authorities of Kenya, Burundi and Rwanda achieved their goals in fiscal year 2020/21, taking into account the lockdown measures of Covid-19.
Behind 15% sales growth
URA’s growth in revenue collections is due to the collection of Shs1tn, largely driven by alternative dispute resolution which has contributed to Shs365bn, the voluntary disclosure initiative, close monitoring of the MOU for installment payments, and enforcement mechanisms, among other things.
The implementation of the Digital Tracking Solutions and the Electronic Fiscal Receipting Solution have also increased performance, according to the executives.
DTS contributed to the 16.89 percent growth in excise levies by helping enforcement and tracking of locally made and imported goods.
On the other hand, EFRIS contributed to the 14.73 percent growth in VAT collections by providing real-time taxpayer transaction details to URA, thereby minimizing under-reporting of VAT collected by consumers. However, both technologies are still in the rollout and have not yet been fully implemented.
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On the frontline of the tax administration, Musinguzi said revenue growth is being attributed to the quick response from overhauling online services for taxpayers, such as: B. Various payment methods, online taxpayer education campaigns (KAKASA), improved contact center (IVR), toll-free queues, faster processing of refunds, introduction of a bonded warehouse information management system, simplification of the TIN application process, automation of the withholding tax exemption and issuing of tax returns.
Customs revenue increased by 16.43%, mainly due to a 37.38% increase in imports in FY 2020/21 compared to FY 2019/20. Only about 23% of total imports are subject to duty.
The new tax administration measures announced in the FY 2020/21 budget speech, including EFRIS, DTS, scanner, debt collection, GPS usage and data analysis, brought in revenue of Shs 1.1 trillion against a target of Shs 548 billion a performance of 202.74%.
The new tax policy measures implemented in FY 2020/21 resulted in net income of Shs 260 billion. Most of the measures were undercut; Income tax, local excise taxes, sales tax and customs.
PAYE down, new taxpayers are added
The Pay-as-You-Earning (PAYE) tax was one of the main tax heads affected, resulting in a shortfall of Shs 315 billion, mainly due to the reduction in the number of employees by some organizations. Corporate tax collections were also Shs 239 billion below target due to losses in the sectors adversely affected.
The interventions of the tax administrations such as audits, taxpayers’ visits, debt enforcements have been slowed down and suspended for a few months due to compliance with the COVID-19 standard operating procedures.
Meanwhile, a total of 189,377 new taxpayers were added to the taxpayer register in the 2020/21 fiscal year, resulting in a growth in the taxpayer register to 1,783,493 taxpayers.
In addition, process improvements such as simplified tax identification number (TIN) registration, from Excel templates to a simple single web form, have been made to facilitate taxpayer registration. This has also been linked to the NIRA database to facilitate tax registration once you have a NIN.
Customs facilitation and enforcement
The Tax Authority has launched the second phase of improving customs business systems with the aim of harmonizing customs procedures and systems to improve cross-border trade, intergovernmental cooperation, clearance time and reduce business costs.
The implementation of the Uganda Electronic Single Window with a single transaction portal was developed and rolled out / used so that traders can transmit documents and / or information once to all border control authorities and thus save time and the associated costs.
Musinguzi said with the 2020 COVID-19 outbreak, URA improved the regional electronic cargo tracking system by enabling it with the driver tracking module. The tax authority is able to monitor 72 percent of the goods processed from the port of Mombasa and also to support driver tracking and their contacts.
During the year, executions of 5,823 seizures resulted in a recovery of Shs 67 billion. The 4,843 seizures concerned dutiable goods and 980 seizures were made of non-dutiable goods.
The main offenses, at 59.39 percent, were due to underdeclaration and 18.38 percent to false declarations. Other offenses concerned temporary traffic violations and traffic violations.
In relation to litigation, the Tax Department’s Legal Department informed the Tax Authority that more than 259 cases were filed, of which 231 were civil and 28 criminal cases. However, 65 cases were decided in favor of URA and 20 in favor of taxpayers.
What is ahead of us?
Parliament has instructed the URA to collect 22.4 tn Shs this financial year, which is a significant increase compared to the previous year.
Musinguzi is optimistic about future collections in the face of the coronavirus pandemic.
“URA’s new transformation journey sets the premise for which this great institution will endeavor to step up its revenue mobilization efforts to free our country from donor dependency, promote a healthy flow of investment, and fairness and transparency in the tax administration system to promote. ” he said.
He said his plan is to continue implementing key programs, including education and services to taxpayers, stakeholder engagement, improving corporate governance, leveraging data and technology, retooling and hiring new staff to meet his appointing authority’s expectations.
Expert suggestion on how to deal with the COVID-19 pandemic
Moses Wasswa, Tax Manager at Ernst & Young Certified Public Accountants of Uganda
Donations to the Covid-19 National Task Force should be allowable as a deduction in the next few years (e.g., within three years), rather than just for fiscal 2020-2021.
Suspension of the collection of tax claims in the 2020/21 financial year. The tax administration may consider suspension of debt recovery, including suspension of attachment of bank accounts through the use of agency communications by URA, seizures and sales of assets.
The carry-forward threshold for value added tax (VAT) could be increased from the current Shs 5 million to Shs 50 million.
Taxpayers can submit tax returns on time and there is the option of paying the self-assessment tax six months after submitting the return.
The application of interest rates for late payments or unpaid taxes could be reduced from the previous 2 percent to, for example, 0.5 percent per month or the default interest could be suspended.
As a one-off measure, the possibility of offering companies reduced corporate tax rates could be explored.
Short-term capital losses by private investors due to the recent stock market slump should be offset against taxable income from employment.