With a revenue shortfall of Shs458 billion in the 2016/2017 financial year, is this an indication of hard times to come? Ismail Musa Ladu analyses whether URA should brace for tough times in its journey towards beating the Shs15 trillion target.
Uganda Revenue Authority (URA) closed its 2016/2017 account with a deficit of nearly Shs460 billion.
The shortfall recorded is about four times the budget allocated to the ministry of trade, industry and cooperatives combined and slightly more than half of the budget given to the agriculture docket, a sector that supports livelihood of majority of the population.
Pessimism hangs in the air
Tax experts and economic analyst interviewed for this article are pessimistic, arguing that it will take a miracle, which they don’t believe will happen, for URA to achieve its Shs15 trillion target by the ministry of Finance for this financial year, 2017/18.
They believe the deficit registered between July 2016 and June 2017, is a tell-tale sign of what will happen.
In the previous financial year, URA was tasked by the Finance ministry to collect Shs13.1 trillion, which proved an insurmountable feat right from the beginning of the year following a shortage the tax body did not recover from.
Although the shortage of Shs458 billion out of a target of Shs13.1 trillion is almost negligible, its impact in real terms, for a country like Uganda, is huge.
It should be noted that the shortfall was beyond URA’s control — slow economic activities.
“…sustained revenue mobilisation efforts have been attained amidst the challenging macroeconomic environment,” the Commissioner General of URA, Ms Doris Akol, said in a statement he presented to the media last week.
Explaining the shortage
According to Ms Akol, several factors affected the previous year’s revenue collections; such as the inaccurate projection of the economic activities in the country.
She said: “Whereas the FY 2016/17 outturn was lower than projected collections by Shs457.5 billion, this performance was realised amidst sluggish economic growth recorded at 3.9 per cent against a projected growth of five per cent.
She continued: “This led to an estimated revenue loss of Shs236.6 billion.
It shall be noted that the larger percentage of the revenue shortfall (82 per cent) was contributed by customs. Most of the top imports yielding items registered a decline in volumes during FY 2016/17.”
According to the statement, most companies and business depend on credit to conduct businesses and pay taxes, something that did not happen because of reduction in private sector credit which affected their profitability. This led to a shortfall of Shs197.1 billion in corporation tax.
Then there was constrained aggregate demand. Aggregate demand is the total demand for goods and services within a particular market.
In this case, Ms Akol was trying to say that economy was not booming enough to generate enough revenue for everybody, including the tax authority!
“The constrained aggregate demand in the economy affected investment decisions by many in the wholesale/retail and manufacturing sectors. Many traders decided to warehouse goods and/or re-export ex warehoused goods which further affected the customs revenue,” she said in a statement.
Re-exported goods, for instance, registered a growth of 11 per cent during the FY 2016/17 compared to a decline of three per cent during the FY 2015/16. Goods are mainly re-exported to Kenya and Rwanda.
“Further still, the constrained aggregate demand led to cash flow challenges which impacted revenue collection especially from withholding tax, PAYE and VAT. For instance, a number of taxpayers filed returns but made no payments during the FY 2016/17.”
According to the executive director of the East African School of Taxation, Mr Godfrey Akena, and the EY tax partner/ country leader, Mr Muhammed Ssempijja, URA should be prepared for a ‘bumpy’ ride.
Speaking in an interview on Thursday last week, Mr Ssempijja, said: “Although I think URA is doing a great job, I think it is unlikely for them to hit their revenue collection targets because it is extremely too ambitious to be realised.”
He continued: “The Shs15 trillion target is too high because I don’t think it factors in the slow economic growth the country is experiencing. Just like I wasn’t surprise with the Shs458 billion shortfall in the previous FY. Likewise, I will not be taken aback if another deficit is registered for the indications are obvious.”
The trend for the last two decades shows that the revenue collection projections always move upwards irrespective of the economic environment.
This, according to Mr Ssempijja, does not have to be the case. He argues that projections and targets should be based on proper analysis, including government ministries, departments and agencies working together.
Mr Akena didn’t differ much with Mr Ssempijja. He said: “As a result of inflating their target beyond what the economy can contain, they were unable to hit their targets.
“I can see they have done the same mistake. I don’t think they will hit their targets given the low economic activity in the country.”
Businesses are suffering, Crane bank is no more and all that means revenue to the tax man will be constrain and so is employment.
According to URA revenue performance report, the financial services and manufacturing registered slow growth in profits in 2016/17 whereas the ICT sector slumped to negative growth.
Unless challenges such as cost of power and access to markets including regional markets, the high cost of credit are dealt with, life it will be a difficult journey for URA.
Uganda Manufactures Association executive director, Mr Tito Byenkya, thinks it is not too late if the mentioned challenges are dealt with urgently.
Never too late
Despite the rough terrain, it is never too late to start doing the right thing.
According to Mr Ssempijja, URA must expand its tax base.
He said the 20 per cent top tax payers pay about 80 per cent of the revenue. This should be dealt with, with everybody paying their fair share of taxes.
“Most retail and whole traders are not paying their share of taxes. They must be brought into the tax bracket. This should be in addition to having strong systems or else there will be nothing much to show for in terms of efforts made.”
Mr Akena believes URA is milking the cow without feeding it properly, implying that unless the economy generates enough economic activities.
URA should be given a reasonable target bearing in mind the state of the economy.
for the URA to achieve the net target of shs15 trillion for the FY 2017/18, it will have to harness the investments already made in the previous FY2016/17 in quality service delivery and emphasising zero tolerance to corruption among others.
According to Ms Akol, effort will also be placed in tax education.