Uganda has made some milestones in the fight against inequality and poverty in the past few years, including Uganda’s tax system regime being relatively progressive. Despite this, the policies have not significantly reduced inequality especially in the time of the corona virus pandemic. Globally Uganda has been ranked 143rd out of 158 countries in its commitment to reducing inequality. It is the 38th out of 48 countries in Sub-Saharan Africa (SSA) and 6th in East Africa only ahead of Burundi and South Sudan. This is according to the Commitment to Reducing Inequality 2020 Index report (CRI) by DFI (Development Finance International), Oxfam and partners SEATINI, CSBAG, and UWONET, Titled “The Inequality Crisis in East Africa.
Uganda’s poor performance was exacerbated by COVID-19 pandemic which pushed millions of Ugandans further into poverty and dramatically increased inequality. According to the World Bank (2021) projections, 52 million people in Sub-Saharan Africa were projected to be pushed into extreme poverty between 2019 and 2021 with 2.6 million being Ugandans. The Uganda National Household Survey 2019/2020 further showed that COVID-19 increased poverty incidence by 3.2 percentage points – with rural areas being the hardest hit. This level of Inequality is a big let-down for Ugandans living in poverty who live hand to mouth.
The CRI tool ranks governments across the world on their commitment to reducing inequality. It measures government policies and actions in three areas of public services, taxation and worker’s rights that are proven to be highly efficient in reducing inequality. The CRI report analyzed Government responses during COVID-19 (2020-2021) to assess the impact on growth, poverty, and Inequality. It further examined Uganda Government’s preparedness to steer inclusive recovery and the role of good governance in influencing this commitment.
According to the report, Uganda’s tax regime is relatively progressive, having the highest threshold to capture the High-income earners at 40% on Personal Income Tax (PIT), the highest within the region.
However, the report’s assessment on the three key pillars of public service spending, Taxation, and labor rights that are efficient in reducing Inequality shows that the pandemic exposed Uganda’s unpreparedness to shocks such as the COVID-19. On the public spending which includes, health, education and social protection, Uganda ranks 144th globally. The country ranks 86th globally on the tax pillar and on the labor pillar, the country is the 156th globally. The ranking was out of 158 countries.
Inequality through the key pillars
Public service spending pillar
This performance is reflected in the limited access to essential public services which translates into low service coverage and access. Uganda was spending only 9.7% of its budget on healthcare in Fiscal Year 2019/2020. About 55% of the population, had no primary healthcare coverage at the time, whereas 15% were paying more than 10% of their household budget to access healthcare, one of the highest rates globally, pushing millions into poverty as a result of out-of-pocket healthcare costs.
Only 3% of children from the poorest 10% of the Uganda population completed upper secondary education. During the COVID-19 pandemic, Uganda had the longest school closure, which increased other social inequalities. Learners from wealthier families adjusted to online learning, which was not a possibility for millions of others from poor households. In February 2021, 75% of households from the richest 20% of the population of Uganda had children engaged in some form of learning, whereas only 39% of learners from households of the poorest 20% were engaged in some form of learning.
Extremely low access to social protection benefits (using pension coverage as a proxy) – Only 6.6% of elderly Ugandans had pension coverage compared to the 24.8 coverage in Kenya, whereas 84% of the labor force was in informal employment, and thus not covered by existing labor rights, the third worst rate in the region. On average, only 20% of workers are on formal contracts, therefore having rights to sick pay, job protection etc. This is because of extremely weak labor rights which have not been updated in over a decade and absence of functional minimum wage.
Tax pillar
Tight fiscal space - Uganda is collecting 17% of what it should from taxes two times less than Kenya. The VAT rate at 18% is slightly higher than the regional average. But the country however exempts basic foodstuffs consumed by the poor from the VAT which is commendable. Overreliance on indirect taxes hurt the poor who pay higher effective tax. Nearly two-thirds of the Uganda’s total tax revenue comes from indirect taxes according to the United Nations University Government Revenue Database. In Uganda Taxation reduces inequality at only 2% compared to Tanzania’s 11%; Kenya’s 7% and Ethiopia’s 3%. However, Uganda is taking positive steps to improve tax transparency such as by exchanging of information (EOI) for tax purposes and the Yaoundé declaration, aimed at improving tax cooperation and addressing illicit financial flows in Africa.
On the other hand, public debt is on the rise and is projected to have risen sharply by 12 percentage points to 49% of GDP in 2021, according to estimates from IMF/ World Bank Debt Sustainability Analyses 2020–21, Debt service is constraining government investment in critical social sectors needed to build resilience and sustainability. In 2020, it accounted for 49% of the government tax revenue, 2.7 times more than government spending on health.
During the COVID-19 pandemic, Government increased their spending on health and social protection. But now, there are long-term plans for slashing public spending, which is being encouraged by lending bodies such as the IMF. Uganda is planning to slash a 1.2 % of the GDP on the National Budget annually for the next five years 2022 - 2026 IMF (Oct 2021) economic outlook, which will affect public spending on pro-poor services like healthcare, education, agriculture, and social protection. This austerity is a cause for concern, as the result is likely to be catastrophic for poverty and inequality, especially in the aftermath of a pandemic.
Uganda’s uncertain economic trajectory is further exacerbated by the emergence of more transmissible COVID-19 variants and a concerningly low national vaccination rate. According to Our World in Data/ Covid -Vaccinations website, Just 3.8% of Uganda was fully vaccinated as of 23rd January 2022. This is largely due to global vaccine inequality in 2021. Vaccine supply by COVAX was scaled up in the final months of 2021. As of mid-January 2022, Uganda had received 32 million doses – enough to fully vaccinate roughly half of the population.
Labour rights pillar
Uganda scores relatively well for having good laws on union and worker rights, according to the ILO, and for having almost all the laws needed to improve women's role in the workforce, according to the World Bank.
However, majority of the women are employed in the informal sector which often has no social safety nets and unfavorable working conditions and most of the women in the formal sector have no written contracts. This means that the most at-risk workers are unprotected from exploitation via very low wages. Various attempts have been made to increase the legal minimum wage in recent years. In 2017, the Uganda Minimum Wage Advisory Board recommended UGS 136,000 minimum wages but this never saw the light of the day at the Cabinet.
Measures to curb the spread of COVID-19 like school closure, restrictions in movement, business closure increased the burden of care on women and girls as they took on extra roles of taking of the family including the sick.
So, what can be done to reduce Inequality
1. Scale-up investment in health, education, and social protection to protect the vulnerable and enhance resilience to future shocks. The government should increase its health budget to at least 15% of total government expenditure to reduce high out-of-pocket healthcare costs. The government should also work towards achieving universal health coverage. The education budget should be increased to at least 20% of the national budget, and the social protection budget should also be scaled-up. This calls for the conducting of impact assessments to identify the shortfalls of the current investment frameworks in the above sectors and their subsequent improvement within the next five years based. This will enable the government to assess how to address current risks and plan better for the future. The government needs to invest in Infrastructure and technology that reduces the burden of care work on women and girls.
2. International financial institutions such as IMF and the World Bank should assist in raising the resources needed to invest in these social sectors. They should desist from advocating austerity to the government. They should also advocate for debt cancellation and more relief.
3. Create decent jobs, reduce the wage gap and increase the minimum wage: The government should intervene in the labour market to protect the most vulnerable segment of the workforce. The long-overdue minimum wage should be enacted. The government should promote both domestic and foreign investments by using national initiatives like wealth creation schemes. However, to fully benefit from such schemes, adequate training and skills must be taken up both in the financial and technical aspects to sustain the investments. Easing credit access, infrastructural development, strong public institutions that guarantee fairness in economic disputes and good governance are key to creating an enabling investment environment for both local and foreign investors needed to promote the creation of decent jobs.
4. Progressive tax system: It’s time the Uganda government made the tax system progressive. It should reduce its over-reliance on regressive sales taxes like VAT. Innovative taxes such as wealth tax on the richest could be a potential source of government revenue. Capital income such as dividends, capital gains and property income should be taxed at a higher rate than labour income. Tax loopholes should be sealed to avoid tax evasion and avoidance while unnecessary tax breaks and holidays should be scrapped. Greater international cooperation is needed to reduce erosion and profit shifting (BEPS) especially by multinational corporations and the wealthy. IFIS, CSOs and the international community should be at the front lines in advocating for this.
5. Reduce public debt: Uganda should use current SDR issuance and concessional external loans to pay down its domestic debt and free up fiscal space from very high debt service, for spending on the social sectors.
6. Transparency in public spending: There should be greater transparency in how public funds are spent to ensure the revenue collected is used for the intended purposes. Government should make financial reports available at regularly for public scrutiny. At the same time, citizens should be more involved in the budget-making process. Lastly, cutting the wastage of public funds through corruption and poor governance will save the country a great deal.
ENDS
Notes to editors
Download the “The Inequality Crisis in East Africa,” report and individual country briefs for Burundi, DR Congo, Ethiopia, Kenya, Rwanda, South Sudan, Somalia, and Uganda here after Feb 9, 2022, at 00:01 EAT.
Contact information
Dorah Ntunga Media and communications Coordinator Oxfam dorah.ntunga@oxfam.org
Herbert Kafeero Media and Communication Coordinator -SEATINI hkafeero@seatiniuganda.org