Ibrahim Bbosa, the spokesperson for the Uganda Revenue Authority (URA), has shed light on the potential effects of implementing an 18% Value Added Tax (VAT) in the country in recent discussions surrounding Uganda’s tax policies. Understandably, there may be concerns regarding the implications of such a tax increase, especially considering the current standard of living. However, it’s essential to examine the broader context to grasp the true impact.
While an 18% VAT rate may initially seem high, it’s crucial to consider Uganda’s overall taxation landscape. Comparatively, Uganda’s overall level of taxation and tax-to-GDP ratio are lower than those of many other countries. This means that despite the seemingly high VAT rate, the overall tax burden on individuals and businesses in Uganda remains lower than in several neighboring nations and other countries globally.
One significant metric used to gauge the impact of taxes is the tax burden. Research from reputable institutions indicates that Uganda’s tax burden stands at 11.8%. This figure is notably lower than countries like Denmark, Italy, and the Netherlands, where tax burdens range from 40% to 49%. In fact, Uganda ranks 140th in tax burden globally, even lower than neighboring countries such as Kenya and Rwanda.
Another key indicator is the tax-to-GDP ratio, which measures the proportion of taxes collected relative to the country’s Gross Domestic Product (GDP). In Uganda, this ratio has remained relatively stable, hovering between 10% and 12% over the years. However, there is room for improvement in widening the tax base by increasing the number of registered taxpayers.
Efforts such as the Electronic Fiscal Receipting and Invoicing Solution (EFRIS) aim to enhance tax compliance and expand the tax base. By ensuring more efficient and equitable tax collection, measures like EFRIS can help redistribute the tax burden more evenly, potentially alleviating the impact on individuals with lower incomes.
In essence, while the introduction of an 18% VAT rate may pose challenges, it forms part of a broader strategy to enhance fiscal responsibility and transparency in Uganda. Ultimately, improving tax compliance and expanding the tax base could lead to better public services and infrastructure, benefiting all residents of Uganda.
