By Brendah Akankunda
Africa-Press – Uganda. Uganda’s taxation system has long been a subject of contention, especially in its impact on the private sector. With a thriving informal economy comprising up to 80% of the country’s economic activity, the burden of taxation falls heavily on the remaining 20% operating within the formal sector. This lopsided dynamic has given rise to several challenges, notably tax avoidance, evasion, and a shrinking tax base, exacerbating the gap between the formal and informal sectors.
Notably, Taxation is a vital source of domestic revenue, crucial for fostering growth and development. However, the overreliance on a narrow tax base ultimately stymies progress, leaving a significant portion of the economy outside the tax net.
The dominance of the informal sector in Uganda’s economy presents a conundrum for the country’s taxation regime. While the formal sector shoulders the tax burden, the informal sector largely evades taxation. This imbalance not only overburdens formal taxpayers but also hampers government revenue collection, hindering the country’s development goals.
With the concern raised by the President of Uganda H.E Yoweri Museveni regarding the preferential treatment given to large corporations at the expense of smaller businesses and industries, the biggest question remains on the effectiveness of the tax incentives.
Often utilized globally to attract investments and drive economic growth, tax incentives have faced scrutiny in Uganda. The significant revenue forgone due to these tax incentives is alarming. For instance, there was a loss of Shs 3 trillion in the 2022/23 financial year, which is twice the allocation to the critical agriculture sector and four times more than the education budget for 2023/24.
The current situation demands immediate policy changes surrounding tax incentives. Addressing the imbalance in tax incentives and broadening the tax base can alleviate the burden on the formal sector while ensuring a fair distribution of tax responsibilities. This revamp could serve as a catalyst for economic development and encourage a more equitable contribution from all sectors of the economy.
The government must engage in a strategic review of tax policies, focusing on promoting a more inclusive tax regime. Such a move could reinvigorate economic growth and development, ensuring that all stakeholders contribute proportionately to the nation’s progress.
By addressing the issues of an overburdened formal sector and the shortcomings of tax incentives, the country can move towards a fairer, more efficient, and inclusive system, fostering a conducive environment for economic development and progress.
Source: Nile Post
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