Widening tax base only way to solve Uganda’s growing debt burden- Government official

An official from the Ministry of Finance has said that widening the net for more taxpayers will greatly help in reducing the ever-growing debt burden for Uganda.

The Auditor-General recently warned that Uganda’s debt which now stands at 41% risks hitting the 50% cap of debt to GDP ratio which is the limit allowed by the International Monetary Fund

Speaking during a media discourse on Special Drawing Rights and the debt crisis within the Covid-19 crisis organized by SEATINI Uganda in Kampala, Samson Muwanguzi, a principal economist from the Ministry of Finance said the sure way to solve the debt burden is through focusing on widening the tax base.

“We need to enhance our domestic revenue mobilization capacity as a country. You realize that our growth is private sector-led and most of these operating are in the informal sector which is not taxed,”Muwanguzi said.

He cited an example of the property tax which was introduced by government a few years ago but noted that this has faced resistance especially from politicians yet it was one of the ways meant to widen the tax base.

“It was aimed at taxing property income and rental income. That tax has almost failed up to now because people’s attitude towards being taxed is very poor. In my view, we think we should be looking at broadening our tax base because if you do so, you lessen the deficit and therefore lessen on the amount you should be borrowing.”

“That should be an area we should focus on as a country. Loans got should also be utilized properly.”

The principal economist from the Ministry of Finance however discouraged the total debt cancellation as one of the ways Uganda can use to do away with its growing debt burden noting that it would be suicidal.

“Some were proposing Uganda being forgiven the debts but we need to know that we are aspiring to cross into a middle-income country. At our level of development, you can’t be seen to agitate for debt cancellation. Should that happen, where do you start the following financial year? You can’t go to the same creditors to ask for more debts. Immediately our credit rating will go down. We will not be seen as a credit-worthy country,”Muwanguzi said.

He insisted that debt cancellation will see donors lose trust in us, adding that it is not the way to go.

According to SEATINI Executive Director, Jane Nalunga, African economies including Uganda are in a financial squeeze caused by mounting debts and the economic downturn exacerbated by the outbreak of the Covid-19 pandemic.

“This has left many economies in financial distress to effectively tackle economic recovery. These ushers in the need for African countries to receive Special Drawing Rights from the International Monetary Fund as an immediate option for addressing the challenging of financing recovery,”Nalunga said.

Special Drawing Rights is an international reserve asset created by the International Monetary Fund to supplement its member countries’ official reserves.

Nalunga however noted that there are other options that Uganda can use to recover from the growing burden.

“We need to suggest ways of raising revenue. We are giving too much burden to URA to collect money to sustain our budget.  We need to increase our exports to get more money to finance the budget,” she added.

Uganda’s public debt has increased by 70%  in the past  three years from shs33.5 trillion to Shs56.83 trillion by June last year whereas the interest of the domestic debt has reached 13.69%.