In a bid to mobilize resources to finance activities of fiscal year 2021/22, government through the ministry of Finance, Planning and Economic Development has introduced new taxes on Ugandans struggling to recover from adverse effects of the Covid-19 pandemic.
Uganda resorts to taxation when other governments worldwide are engaged in quantity easing to enable and ease economic recoveries. Preferring taxes and insignificant exemptions during a pandemic, we appear indifferent, hence risking causing more harm than good in the long run.
This also happens amidst allegations that even Covid-19 financial reliefs government earmarked and channeled through Uganda Development Bank were diverted to other roles by selfish lobbyists.
According to the Auditor General’s report 2019/2020, the Office of the Prime Minister failed to account for Shs 56 billion meant for Covid-19 relief activities. Away from Uganda, neighbouring Tanzania has vowed to reduce the income tax rate by one per cent to eight per cent in the next fiscal year.
So, how much has the Ugandan government bailed out our businesses and families grappling with the pandemic before introducing new taxes?
Although new tax measures come with a cocktail of VAT and Stamp Duty exemptions, such interventions fall short on helping small domestic businesses. The 12 per cent tax on internet as a replacement of the failed OTT is a disincentive to digital investors, innovators and internet users already grappling with the highest internet costs in East Africa. Such is the contradiction to government’s efforts to digitise the economy.
The indirect tax on fuel comes to a transportation sector still struggling with high costs due to Covid-19-induced lockdowns aimed at curtailing the virus spread. Yes, taxes are legal tools by which governments deploy to raise the necessary resources to fund their legal activities but such must be done in good faith hence the saying, “He who demands equity must do equity first.”
Sensitise EACOP-affected persons
The media has extensively reported about the start of the East Africa crude oil pipeline. The EACOP is the project expected to cover ten districts in Uganda such as Kikuube, Hoima, Kakumiro and Kyotera, among others.
This means that wherever the EACOP project will pass, it will impact many livelihoods and properties. The government of Uganda and the oil companies should first sensitize the affected persons on how to use the compensation before giving it to them.
History shows that when the refinery-project-affected persons were given money as compensation, the money led to increased cases of breakdown of families because the men ran away after getting money. Other people developed a drinking problem, while others squandered the money by buying non-productive items.
This incident is likely to happen again among the EACOP-affected persons because no sensitization has taken place. This needs to be done before any compensation is given to the affected people.
Leave Uganda Women Entrepreneurship Program alone
The Uganda Women Entrepreneurship Programme (UWEP) is an initiative by the government of Uganda to improve women’s access to financial services, equip them with the skills for enterprise growth, value addition and marketing of their products and services.
And this programme addresses the challenges women face in undertaking economically viable enterprises. The women are availed with interest-free revolving credit to initiate or strengthen their enterprises.
The programme, which began in the financial year 2015/2016, was designed to address the challenges women face in undertaking economically viable enterprises including the limited access to affordable credit, limited technical knowledge and skills for business development, limited access to markets as well as information regarding business opportunities.
Merging UWEP with other programmes, as proposed by the government, will undo the achievements that have been made. It will also tarnish Uganda’s efforts to realise the sustainable development goals (SDGs) on gender equality, poverty, decent work and economic growth and reduced inequality.
It is also important to note that if the fund is merged, many women will miss out on accessing the funds because the money will not be enough for them to start up their businesses.
However, we cannot say that merging is bad; it also has benefits such as increased market share, reduced costs of operation and expansion of business into new geographic areas. But when it comes to UWEP, there is no need for merging because it will create gaps in communication whereby the parish model as suggested by the government to merge with UWEP might have different goals, objectives and cultures.
Uganda is known to have registered significant strides in strengthening and institutionalizing gender equality. Uganda’s policy framework for development recognises the economic empowerment of women as a critical priority.
Therefore, instead of government merging UWEP with parishes, let them first finance the other programs that are still run majorly to improve women empowerment.
New taxes will hit Ugandans hard
The Covid-19 global pandemic plunged global economies into an unavoidable crisis because of lockdowns and travel bans, which severely affected big and small businesses. Uganda was not spared either.
Across the world, the caring governments did their best to implement several strategies to mitigate the effects of the pandemic. However, some kleptocratic governments did nothing, especially in Africa.
Apart from over borrowing to spend on brutality against opposition in the name of fighting the pandemic, distribution of posho, expired milk and rotten beans to a handful of the population, nothing has been put in place to ensure that businesses stay afloat and that people are relieved of debts accrued due to the pandemic.
We went into a total lockdown for close to three months and during this time, businesses came to a standstill. Schools, arcades and other ‘non-essential’ businesses were closed.
The resulting effect was that businesses laid down workers since without income, they could not afford to keep them on the payroll. Surprisingly, in other sectors, landlords still demanded full payment of rent, especially the arcade owners where many businesses had closed. All this further plunged our economy into a deeper crisis.
Financial institutions were not immune to the resulting effects of the travel bans, lockdown and closure of business. That said, the biggest loser continues to be the ordinary citizen.
The government of Uganda has done absolutely nothing to ensure that our economy not only survives the effects of the pandemic but thrives as well.
However, the recent tax proposals are a thing to worry about the performance of this economy; if we are not careful, we are likely to sink further into the bottomless abyss.
There is an ongoing debate between fiscal austerity and fiscal stimulus. Opponents of austerity worry about contractionary effects on the economy. Opponents of stimulus worry about indebtedness and moral hazard.
Proponents of austerity believe that only balancing government budgets and shrinking national debts and an increase in tax revenues will help our economy. Having an insight on the merits and demerits of both, I am a firm believer that without a large fiscal stimulus, the continued imposition of more taxes on an already bruised citizenry will plunge the economy further into crisis.
Let us put things in perspective; a stimulus fiscal policy would require the government to bail out its citizens through sending them money. On the other hand, if we apply austerity, that means the government is encouraged to levy more taxes on businesses and people, the most likely effect of a heavy tax burden is that businesses may be forced to cut spending, thereby laying off labour to comply with tax obligations.
Prices of essential goods may also increase; this will lead to reduced economic activity and in the end government will have little to collect in taxes. I call upon all the relevant stakeholders to take a step back and study the implications of austerity.