Uganda taxman in a fix over how to collect $1b in two months

What you need to know:

The country's collection target for 2016/17 stands at $3.6 billion while URA raised $2.5 billion in the first nine months of this financial year.
Additional borrowing form the local market could trigger fresh crowding out of the private sector in the form of higher lending rates and reduced access to credit.
Apart from excise duty, new tax measures announced in June 2016 performed below target during the first nine months of 2016/17.

It is going to be a rough ride for Ugandan taxpayers as the taxman moves to plug a Ush3,938.65 billion ($1.1 billion) shortfall, two months to the close of the 2016/17 financial year.

According to experts, tougher enforcement actions and poor returns posted by new tax measures are just the beginning.

There are also risks of increased government borrowing in the domestic debt market.

Uganda’s revenue collection target for 2016/17 stands at Ush13,177.15 billion ($3.6 billion) while the taxman raised Ush9,238.91 billion ($2.5 billion) in the first nine months of this financial year.
Poor revenue collection often results in the taxman resorting to such measures as temporary closure of businesses and issuance of agency notices against less compliant parties — a procedure that involves raiding one’s bank account in order to recover unpaid taxes.

In the past one year, the Uganda Revenue Authority has closed Good African Coffee over tax arrears and put WBS Television Ltd under receivership.

Risk-based audits

Between July 2016 and March, URA conducted 1,382 risk-based audits, generating a total assessment of Ush189 billion ($51.6 million) and recovered tax arrears amounting to Ush201.83 billion ($55 million).

To plug the revenue gap, the government could be forced to borrow more from the local market, a situation that may trigger fresh crowding out of the private sector in the form of higher lending rates and reduced access to credit.
Besides, huge domestic borrowing results in more expenses on interest paid on Treasury bills and bonds.

“The debt collection efforts are targeted at taxpayers who have consistently failed to clear their tax dues in spite of previous payment plans agreed between them and URA,” said Doris Akol, URA Commissioner General.

According to Dr Adam Mugume, executive director for research at the Bank of Uganda, investors are not ready for panicky borrowing operations and “will certainly penalise government if they noticed signs of desperate borrowing actions through raising bid rates attached to government securities.”

Data compiled by BoU shows total government borrowing levels in the domestic market grew to Ush912 billion ($248.9 million) by the close of October 2016 against a budgetary target of Ush690 billion ($188 million).

Domestic borrowing

Total domestic borrowing levels rose to Ush1.272 trillion ($347 million) at the end of April.
Apart from excise duty, new tax measures announced in June 2016 performed below target during the first nine months of 2016/17. For example, fresh excise duty tax measures raised Ush226.71 billion ($61.8 million) against a target of Ush181 billion ($49 million).
In contrast, new VAT measures generated Ush2.5 billion ($682,448) against a target of Ush12 billion ($3.2 million) while income tax measures raised Ush15 billion ($4 million) against a target of Ush40 billion ($10.9 million). Non- tax revenue measures yielded Ush9.3 billion ($2.5 million) against a target of Ush21.5 billion ($5.8 million) during the period July 2016-March 2017.