By Calvin Mugume
Uganda’s Local Service Tax (LST) was introduced to give local governments a sustainable source of financing. However, years of decentralized collection have exposed deep inefficiencies — fragmented systems, poor compliance, revenue leakages, and an unnecessary administrative burden on businesses.
As a finance leader, I believe it is time for the Uganda Revenue Authority (URA) to take over the administration and collection of LST. This shift would be a smart fiscal reform with clear benefits for all stakeholders.
Why Change Is Necessary
Most companies segregate their workforce and operations according to the municipalities and local governments where their staff originate or reside for purposes of Local Service Tax (LST) compliance. However, apart from KCCA, most other municipalities and local governments seem largely aloof and unresponsive on LST matters.
Despite repeated attempts to seek guidance and establish clear procedures, responses — if they come at all — often take more than a month. There is no standardized or transparent process for filing, collection, or reconciliation. This lack of clarity not only frustrates compliance efforts but also creates unnecessary administrative burdens for companies that genuinely wish to meet their obligations in a timely and accurate manner.
The change is necessary because:
- Fragmentation is costly. With each local government running its own LST collection, businesses are forced to deal with multiple systems, timelines, and points of contact — a structure that discourages compliance.
- URA has the capacity. URA’s digital platforms and national reach can streamline collection, enforce compliance uniformly, and reduce revenue leakages.
- Business compliance will be simpler. Centralizing LST means employers can file and pay through the same URA system used for PAYE, VAT, and other taxes.
- Local governments benefit too. With improved compliance and predictable transfers from URA, local authorities can focus on service delivery, not chasing collections.
- Supports national revenue goals. Integrating LST into URA’s framework strengthens Uganda’s domestic revenue mobilization agenda.
A Win-Win Reform
This is not about creating a new tax. It’s about administering an existing one better. By transferring LST collection to URA, we can increase compliance, reduce administrative costs, and ensure local governments receive more predictable, transparent funding.
I strongly urge policymakers to act decisively on this reform. A centralized, automated collection system under URA is the most efficient path to unlocking the full potential of Local Service Tax — for businesses, local governments, and the country at large.
Calvin Mugume is a Chief Financial Officer with extensive experience in financial strategy, tax compliance, and corporate governance. He writes on fiscal reform, business strategy, and financial leadership in emerging markets.
