Uganda’s regressive tax system contributing to income, gender inequality- report

A report by Civil Society Organisations has indicated that Uganda’s tax system has continued to be regressive and consequently contributing greatly to income and gender inequality in the country.

The Fair Tax Monitor report 2021 by Oxfam Uganda and SEATINI Uganda in collaboration Tax Justice Alliance Uganda, SOMO, FEMNET and Tax Justice Network Africa was launched under the Fiscal Justice for Women and Girls in Africa project co-funded by the European Union.

The report indicated that indirect taxes which contributed 64.42% of Uganda’s total tax revenue in the financial year 2020/21 have a big effect on low-income earners, especially women.

“Tax laws are amended annually mainly to increase revenue but government does not ascertain the impact of tax amendments on women and marginalized groups. For example the financial year 2021/22 amendments like the rental income are likely to disproportionately benefit men, the additional shs100 per litre of fuel as excise duty is likely to increase the cost of transport whereas the 12% excise duty on internet data is to likely to increase the cost of internet,” the report says.

The report also indicates that Uganda’s dependence on indirect taxes makes the tax system regressive.

“Indirect taxes disproportionally affect low-income earners, especially women, because they spend a higher proportion of their income on consumer goods for their families.”

According to the report, in some cases excise duties are regressive because they are usually flat rated, for example, a 0.5% levy on mobile money withdrawals.

“These tend to affect low-income earners more – especially women, who spend a higher portion of their income on these items,” the report says.

It was also indicated that government doesn’t publish the impact assessment studies of excise taxes on the on women and the poorest people in society.

“The excise duty charges or rates are informed by the need to generate revenue and minimizing negative externalities, rather that impact on people,” the report says.

Presumptive taxes

The report indicates that the recent reform of the presumptive tax regime generally reduced tax payable across the different thresholds but also lowered the turnover threshold at which a person becomes taxable, in an attempt to widen the tax base.

“The reform of the presumptive tax regime made Uganda’s presumptive tax regressive, because taxpayers with low annual turnover pay a higher proportion of their income in presumptive taxes than those with higher turnover,” the report indicated.

It also says the country’s presumptive tax regime is not based on flexible assessment because there is lack of clarity for taxpayers as to how ‘record keeping’ is defined.

The report also indicates that the presumptive tax rates do not differ across economic sectors since they are the same even for sectors predominantly composed of women workers, such as the service sector.

Challenges

The report further indicates that the tax administration system faces several challenges including low funding to URA, increase in taxpayer to staff ratio and costly tax and investment incentives which cost the country a lot of money.

The report says that on top of the prevailing tax system, the impact of the Covid pandemic led to a reduction in government revenues.

“Tax systems are, globally, seen as putting women at the margins, and not just in terms of the how taxes affect income, wealth, and behaviors directly. They are not designed in a way that gives sufficient attention to the net effect that tax and spending systems combined, both on paper and in practice, have on the immediate needs or strategic priorities that underpin gender inequalities,” said  Francis Odokorach, the Oxfam Uganda Country Director said about the report.

“Tax laws in Uganda are annually amended with the focus of increasing tax revenue and establishing an efficient mode of collecting taxes. However, apart from tracking the revenue growth, the government should ascertain the impact of tax amendments on gender and marginalized groups in respect to the widening inequality gap. We, therefore, call on policymakers, through the number of recommendations in this report to make tax fair.”

The SEATINI Uganda Executive Director, Jane Nalunga said it is very possible for the status quo to be changed by government.

“Despite government efforts to increase women representation in fiscal policy formulation, public participation is still weak and low at 22%, according to the International Budget Project (IBP) 2019 Open Budget Survey. Therefore, an increase in public tax education remains vital as this empowers citizens to shape transparency and accountability in Uganda,”Nalunga said.

She added that this should not only be a civil society concern, but the  responsibility of every citizen, to ensure equity and fairness through advocacy for a tax system that allows everyone to pay their fair share of tax.

“Transparent and gender-responsive spending will go a long way to enhance the quality of life of ordinary citizens in Uganda.”