The role of Strategic Partnerships in the fight against economic inequality through influencing international & domestic tax policy– a case of the Uganda-Netherlands Double Taxation Agreement
Excessive economic inequality is one of the defining issues of our time. Unfortunately, Uganda has experienced a rise in economic inequality over the past twenty years (scoring 0.37 on the Gini coefficient in Financial Year 2016/17) which has reflected into a macroeconomic instability and faltering economic growth. The poorest Ugandans have seen their possessions decline by 21% over the same time period and as a result, only the poorest 10% of Ugandans own 2.5% of the country’s wealth, while the poorest 20% of Ugandans own 5.8% of national income yet the economic power of the wealthiest is increasing; Uganda’s tax regime has been identified as one of the key drivers of inequality.
Oxfam in Uganda and local partner organization-Southern and Eastern Africa Trade and Information Negotiations Institute (SEATINI) have recently published a national Fair Tax Monitor report (2018), which reflects the highly regressive character of Uganda’s tax system. The report has demonstrated that approximately 64% of the total tax burden is borne by the poor, while multinational companies and wealthy individuals systematically avoid paying their fair share of taxes – a main reason for Uganda’s low revenue collections and investment into public services. The overall unfairness of Uganda’s tax system reflects the inequitable social and economic models that perpetuate power concentration, discrimination and a widening income inequality in the country.
Since 2015, Oxfam Novib has been working with Oxfam in Uganda and local partner organizations in the fight against fiscal injustice. Oxfam believes that a fair national tax system is a fundamental way to tackle inequality and alleviate poverty, while creating a sustainable structure for developing countries to raise revenues for public investment and fundamental public services. The focus on improving Uganda’s revenue collection capacity – known as Domestic Revenue Mobilisation (DRM) – in a fair manner can be achieved through policy reform and the strengthening of tax administration.
The Uganda government has recently made efforts to address some of these issues, including enacting changes to its domestic tax laws aimed at closing loopholes exploited by multinational corporations and wealthy individuals. However, the tax leakages in the country remains an alarming issue – as highlighted by the recent #MauritiusLeaks – and Uganda is in need of a fundamental reform on its fiscal policy towards fighting extreme inequality.
One issue recognized by the Uganda government back in 2014 is the need to improve the tax treaties Uganda has signed with other countries. These bilateral arrangements have a direct impact on the activities of multinational corporations and determine the amount of tax revenues Uganda can collect from these companies. With ten bilateral tax treaties in place and five others at different stages of negotiations, Uganda’s Ministry of Finance, Planning and Economic Development (MOFPED) had noticed that such deals were having a negative impact on the national tax base.
The Fair Tax Monitor report has also highlighted the need to update the tax treaty network and reduce the present cross-border tax leakages as a priority for the country. At the launching of the Fair Tax Monitor in January 2019, Uganda’s MOFPED recognized the value of the data gathered by the report and committed efforts to reform Uganda’s tax treaty network. Civil Society Organizations and individual citizens also have an important role to play in these reform objectives, informing the direction of policy reform and monitoring the implementation of new policies.
While Uganda is seeking to renegotiate bilateral tax treaties with different countries, Oxfam Novib identified an opportunity to influence – together with Oxfam Uganda, SEATINI and Tax Justice Alliance Uganda (TJAU) – the improvement of Uganda’s tax treaty with the Netherlands (UG-NL). After initial conversations with the Dutch Ministry of Finance in August 2019, Oxfam Novib was informed about the disposition of the Netherlands to begin negotiations for changes in the tax treaty with Uganda. However, previous requests from the Dutch government to Uganda for a renegotiation had fallen on deaf ears, as Uganda had temporarily suspended tax treaty negotiations while they formulated a general policy framework on it. Uganda’s CSOs followed up on the commitments that were made by Government of Uganda during the launch of the Fair Tax Monitor, and also inquired about the opportunity to enter into DTA re-negotiations with the Netherlands. Gladly, Uganda responded to the Dutch Ministry’s request and both countries agreed to start initial discussions in Kampala, Uganda.
On scheduling a meeting with the Government of Uganda, the Dutch Ministry of Finance contacted Oxfam Novib and offered the opportunity of Oxfam in Uganda and TJAU CSO members to dialogue with the Dutch envoys in Kampala prior to the start of official renegotiations. In preparation for the policy dialogue, Oxfam Novib and The Centre for Research on Multilateral Corporations (SOMO) worked with Oxfam Uganda and TJAU partners to develop a position paper focused on previous analysis on the shortcomings of the Uganda-Netherlands treaty.
Granted with a unique opportunity to influence the upcoming negotiations, Oxfam in Uganda and other TJAU CSO members held a policy dialogue with the Dutch envoys in Kampala, on the 25th of September 2019, where they presented a position paper whose policy asks related to Uganda regaining fundamental taxing rights and preventing further tax abuse from corporations. In response to the CSO team, Mr. Harry Roodbeen (Director of International Tax at the Dutch Ministry of Finance) thanked all participants for their presence and confirmed the willingness of the Dutch government to negotiate a fair tax treaty with Uganda. After which a meeting between the Dutch envoys and Uganda government officials took place on the 26th and 27th of September 2019 marking the start of the renegotiation process which is officially ongoing.
The role of Oxfam Novib, SOMO, Oxfam in Uganda, SEATINI and TJAU CSO members in these negotiations is a perfect example of how the Strategic Partnership program connects citizens, civil society partners and stakeholders at local, regional and global levels, delivering an impact on fiscal policy reform. Lastly, it highlights the role of civil society in supporting people to advance their rights though actively engaging with power holders on issues of public revenue collection. It also affirms the need for continued support to CSOs from donors towards enhancing Domestic Revenue Mobilisation in the developing countries like Uganda.