Is taxation choking business growth in Uganda?

by Mmeeme Leticia Luweze
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On Monday, April 15, 2024, Kampala’s business community, represented by various umbrella bodies and led by Thaddeus Matovu, chairperson of the Kampala City Traders Association, began a nationwide business closure that took effect on April 16, 2024. According to Matovu, this decision is fueled by their discontent with what they perceive as unjust taxation, particularly citing the hefty 18% VAT tax and the recently introduced Electronic Fiscal Receipting and Invoicing Solution (EFRIS) system.

Traders affiliated with the Kampala City Traders Association (KACITA) have closed down the Kiyembe business hub and other commercial centres in Kampala in protest against the enforcement of the Electronic Fiscal Receipting and Invoicing Solutions (EFRIS) system by URA (the Uganda Revenue Authority).

Acknowledging the adverse effects of the tax system on the business community, Kampala Central Mayor, Salim Uhuru, stated, “Despite my affiliation with the ruling party, I acknowledge the tax system’s negative impact on the business community,” voicing his solidarity with the protesting traders.

Issa Ssekito, Spokesperson for KACITA, remarked, “For more than 20 years, KACITA has been in discussions with URA. The characterizations of us as monsters and them as thieves have ceased. We’ve also raised concerns about Chinese manufacturers who both produce goods and establish shops that directly compete with local traders.” Ssekito added that the taxes imposed, along with the implementation of the VAT tracking system and the increasing involvement of foreigners in businesses that locals would traditionally run, have left them with no option but to close shops. 

John R. Musinguzi, the Commissioner General of the URA, encouraged Ugandans to embrace the Electronic Fiscal Receipting and Invoicing System (EFRIS) by requesting e-receipts whenever they purchase goods or receive VAT-related services.

Musinguzi highlighted that when an e-receipt is issued through EFRIS, it helps URA track VAT, and there are various channels available for EFRIS, including the EFRIS Mobile App, web access, desktop app, and system-to-system integration. He made these comments during a workshop focused on reviewing Uganda’s resource envelope for the Financial Year 2024/25.

He emphasised that Uganda’s revenue could increase significantly if all VAT-registered taxpayers start using EFRIS.

URA implemented EFRIS in 2021 to tackle tax administration challenges related to business transactions and receipt issuance. By the end of the last financial year, the VAT taxpayer register listed 35,046 taxpayers, with the tax head achieving 91.67% performance.

At the workshop, Ramathan Ggoobi, the Permanent Secretary and Secretary to the Treasury, expressed support for the adoption of technology to grow revenue and pledged backing for URA’s efforts in this area. “With EFRIS and DTS (The Digital Tracking Solution), you have our full support because this is the only way we can boost the country’s VAT collections. We will engage leaders at all levels to cooperate and support these efforts,” Ggoobi stated.

URA believes that increasing collections will significantly enhance Uganda’s tax-to-GDP ratio, which currently stands at 14%, just 2% below the Sub-Saharan Africa average of 16%.

Research Gates conducted a study on Taxation and its impact on economic growth in Uganda, indicating that value-added tax, collected throughout supply chains, constitutes a third of the revenue base. However, the study also pointed out the regressive effects of value-added tax on the living standards of lower-income households.

What is EFRIS?

According to URA, EFRIS in full is Electronic Fiscal Receipting and Invoicing Solution. EFRIS entails the use of Electronic Fiscal Devices (EFDs), e-invoicing, or direct communication with business transaction systems to manage the issuance of e-receipts and e-invoices by the Tax Procedures Code Act 2014. 

URA emphasizes that enrolment in the system is compulsory for all VAT-registered taxpayers. However, individuals or entities not falling under this category are encouraged to adopt EFRIS and leverage its diverse benefits.

URA also states that the system offers advantages to both taxpayers and the Uganda Revenue Authority (URA). It speeds up refund claims by providing readily accessible information. This sets the stage for URA to offer prefilled tax returns to taxpayers in the future, streamlining the filing process. It enables taxpayers to track and validate business transactions in real-time, aiding efficient business management, bookkeeping, and sales management.

In a tweet posted yesterday, Tuesday 16th, URA stated, “EFRIS is a system empowering business operator to handle e-receipts and e-invoices in real-time. It’s a modern tool simplifying daily business transactions and management.”

Various leaders provided their perspectives on EFRIS.

“It’s imperative that we engage in constructive dialogue with the traders to explore avenues for improvement. We need to understand the impact of technological advancements on their livelihoods. Particularly, considering that many downtown traders deal with imported products, there’s a ripple effect throughout the value chain.” Dickson C Kateshumbwa Member of Parliament Sheema Municipality

“The majority of those expressing concerns about VAT are not its contributors. Only 33,000 entities and individuals in the country pay VAT. EFRIS is specifically tailored for them, and it’s crucial to provide them with a comprehensive education on its operation,” emphasized Ibrahim Bbossa, the spokesperson for the Uganda Revenue Authority (URA).

He further elaborated, “We’ve had a Value-Added Tax (VAT) since 1996, targeting individuals earning over UGX 100 million annually. Despite currency fluctuations, the VAT threshold has remained unchanged since its inception. However, there’s a proposal to adjust it to better align with current economic realities.”

Muhammad Nsereko highlighted, “Excessive taxes burden a small portion of our population, while investors often benefit from tax exemptions. However, critical infrastructure like roads, funded by taxpayers, serves all. The proliferation of taxes deters serious investors from establishing businesses in our country.”

Hon. Betty Nambooze emphasized, “A Bank of Uganda study revealed that 70% of Ugandan business owners rely on loans to start their ventures. Many families struggle with overspending, underscoring the need for authorities to grasp the diverse circumstances of our citizens.”

She continued, “For many Ugandan traders, e-receipts are impractical as they operate on a small scale to meet basic needs. Limited capital often confines them to brokerage roles, earning modest profits from goods and services.”

Hon. Haruna Kyeyune Kasolo clarified that “EFRIS serves as a tax collection mechanism rather than a tax itself. Traders’ concerns revolve around the need for enhanced education and comprehension of this system.”

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