User:Cmuyingo/Taxattion policy and Public Expenditure in Uganda

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Introduction;

Uganda Revenue Authority (URA) is the statutory Institution charged with the role of Managing taxation in the country along with the Ministry of Finance, planning and economic Development (MOFPED) which primarily carries out the role of Public expenditure management and planning. All this is done with cooperation of the Bank of Uganda (BOU) in order to harmonize monetary and fiscal policy objectives.

Background of Taxation system;

Tax system has a significant effect on the economic direction and welfare of different stakeholders in the nation. From the early 1980s, Uganda’s tax systems faced many challenges owing to political unrest due to civil war where export taxes constituted the largest part of the countries collections to a turn of 15% to 68% of the total revenue (Ssewanyana, 2008). Tax reforms began with the inception of the Uganda Revenue Authority in March 1992 with a view of improving tax administration. New taxes reforms introduced included; Withholdingtax (1994/95), Tax Identification Numbers (TIN) (1996/97), Value Added Tax (VAT) in 1997 at a rate of 17%, New Income Tax Act (1997/98), Graduated Tax was abolished (2005/06), Introduction of the local service tax (2007/08), 10 year tax holiday to companies engaged in value exports and introduction of environmental Levy.

Types of Taxation; Current tax system of Uganda can be summarized into five major components;

• Corporate and Personal Income tax(PAYE),
• Value Added Tax (VAT) on goods and services
• Customs and Excise duties
• And stamp duty.
• Other statutory levies and social security payments

The mode of collection is self assessment and by withholding tax to residents and non-residents.

Taxation and Expenditure patterns

With reference to Table 1, Value Added Tax (VAT) is the largest contributor of revenue to the country at an average of 35.75% over the period 1997-2008. Trends of Pay as You Earn (PAYE) income tax have steadily grown for 6.07% to 15.17% of the net revenue obtained. A declining trend of excise duty was noted over the period under review from 14.52% to 9.72%. Percentage of Corporate tax however rose steadily for 1997 to 2006 from 3.67% to 9.47% respectively and gradually declined in 2008 to 6.28%.

Table 1

Year	1998/99	1999/00	2000/01	2001/02	2002/03	2003/04	2004/05	2005/06	2006/07	2007/08	2008/09
PAYE	57.65	83.47	103.35	137.31	168.27	200.27	245.33	307.57	368.63	440.70	555.71
CORPORATE	44.31	40.47	54.27	69.41	84.27	121.58	160.03	182.17	195.01	230.80	229.96
EXCISE DUTY	129.65	131.38	125.57	139.27	148.07	177.40	186.38	183.90	249.50	299.70	355.83
VAT	321.26	343.13	374.20	431.80	495.47	573.52	664.54	781.92	925.10	1138.30	1294.07
TAX REFUNDS	-22.72	-30.00	-35.00	-38.78	-29.87	-42.51	-46.41	-60.01	-96.00	-100.20	-101.91
FEES & LICENSES	21.65	21.73	22.94	28.84	39.08	51.27	63.27	75.35	83.90	61.30	103.16
NET COLLECTIONS	935.56	978.00	1075.15	1075.15	1409.25	1642.06	1923.52	1923.52	2625.20	3159.00	3662.32
PAYE	6.16%	8.53%	9.63%	12.77%	11.94%	12.20%	12.75%	15.99%	14.04%	13.95%	15.17%
CORPORATE	4.74%	4.40%	5.05%	6.46%	5.98%	7.40%	8.32%	9.47%	7.43%	7.31%	6.28%
EXCISE DUTY	13.86%	13.43%	11.68%	12.95%	10.51%	10.80%	9.69%	9.56%	9.50%	9.49%	9.72%
VAT	34.34%	35.08%	34.80%	40.16%	35.16%	34.93%	34.55%	40.65%	35.24%	36.03%	35.33%

Source: Ministry of Finance Planning and Economic Development (MOFPED).

Note: Amounts of Collection are in billions of Uganda shillings.

Figure 1. File:Uganda Tax Revenue(1997-2008).jpg

Figure 1 gives a graphical presentation of the taxation trends with VAT having significantly higher collections as compared to the other forms of taxation.

Table 2

Year	2002/03	2003/04	2004/05	2005/06	2006/07	2007/08	2008/09
Revenue	1642.1	1669.1	1887.7	2230.9	2625.8	3161.1	3662.3
Expenditure	2658.1	3033.4	3274.7	3548.9	4208.2	4439.2	5175.0
Rev/GDP	12.20%	12.40%	13.60%	12.30%	12.40%	12.90%	12.20%
Exp/GDP	23.00%	23.00%	23.60%	19.70%	19.40%	18.80%	17.40%

Source: MOFPED

Note: Amounts are in billions of Uganda shillings.

Table 2 shows the trends of Public expenditure and revenue as a percentage of GDP. It is visibly notable that Uganda’s expenditure has been significantly higher than its revenue as a percentage of GDP for the period under review. On Average Public expenditure is 20.07% as compared to Net revenue which accounts for 12.57% of the Country’s GDP. However Public expenditure as a percentage of GDP has declined over time from 23% to 17.4% as compared to revenue which has remained stable at 12.20% for the period under review.

Expenditure Patterns

Table 3

YEAR	2004/05	2005/06	2006/07	2007/08	2008/09	2009/10
GPA	17.4%	25.2%	39.2%	39.9%	24.3%	43.9%
DEFENCE	24.5%	23.1%	21.6%	21.2%	25.8%	16.5%
POS	10.7%	11.6%	12.8%	12.6%	12.7%	11.5%
EDUCATION	8.4%	7.6%	14.7%	12.9%	16.6%	9.7%
HEALTH	5.3%	5.3%	3.9%	5.5%	7.3%	6.8%

Source: Uganda Bureau of Statistics (UBOS).

Expenditure patterns in table 3 indicate that General Public Administration (GPA) is the largest expenditure incurred at an average of 31.65% of the total expenditure. A significant percentage is spent of defence amounting to 22.12% due to the ongoing civil war in the Northern part of the country with the Lord’s Resistance Army Rebel group. A significant drop is expenditure was noted in financial year 2009/10 owing to the reduction of the security insurgency in the Northern part of Uganda as the rebel activities had been weakened by the military that pushed the rebels to the Central African Republic. Public Safety and Order (POS) and education accounted for 11.98% and 11.65% of the average expenditure respectively whereas, health services accounted for only 5.68% of the average expenditure.