Strengthen the Tax system to reduce the income and gender inequalities in Uganda

13th April 2022

Uganda has made some milestones in the fight against inequality and poverty. However, there is continued regressivity of the tax system, affecting low-income earners, especially women. Indirect taxes contributed to 64.42% of Uganda’s Total Tax Revenue in FY 2020/21. This is according to a Fair Tax Monitor Report 2021 launched by Oxfam in Uganda and SEATINI- Uganda in collaboration with Tax Justice Alliance Uganda, SOMO, FEMNET and Tax Justice Network Africa. The report was launched under the Fiscal Justice for Women and Girls in Africa project co-funded by the European Union.

The Fair Tax Monitor is a research tool that identifies the main bottle necks within the fiscal policies and systems and assessing their redistributive qualities and making recommendations for change.

According to the report, Uganda’s excise duty regime has a degree of progressivity. The top richest households pay more excise duty as a percentage of their consumption than the bottom poor households. However, in some cases, excise duties are regressive because they are usually flat rated (e.g., a 0.5% levy on mobile money withdrawals). These tend to affect low-income earners more – especially women, who spend a higher portion of their income on these items.

The report further indicates that the tax administration system faces several challenges, which have contributed to Uganda’s failure to meet its annual revenue collection targets. These include, among others, low funding of the URA, an increase in taxpayer-to-staff ratio and costly tax and investment incentives which cost Uganda UGX 5,030.45 Bn (US$ 1,354 Mn) or 30% of total revenue. This is more than the total budget allocated to the health, agriculture, water and environment, and social development sectors during the FY 2019/20, according to the latest report on tax expenditure by MoFPED.

These affected Uganda’s total Tax collection from reaching its potential. Uganda’s Tax to GDP ratio averaged at 13%, below the Sub-Saharan Africa of 16.5% and that of its EAC neighbours Kenya and Rwanda at 15.9% and 14.6%, respectively. This threatens Uganda’s ambition to meet its public expenditure priorities and attainment of the Domestic Revenue Mobilization Strategy commitments.

On top of this prevailing tax system, the impact of the Covid-19 pandemic led to a reduction in government revenues and grants of about UGX 2,291bn (US$626m) against a target of UGX 23,529.6bn (US$6.4bn) during FY 2020/21. The government instituted austerity measures which included cuts in spending on social sectors (education, health, and social development), agriculture, and water and sanitation. These budget cuts affected women more, as women account for a bigger share of use of most public services such as health facilities.

Despite Uganda registering a 51% increment in the Total Tax Revenue collection during the last five years from FY 2016/17 to 2020/21, Government spending has continued to outstrip revenues, increasing the annual budget deficit (i.e., the difference between revenue and expenditure) from 4.1% to 6.3% of GDP. The government has continued to borrow domestically and externally to finance the deficit, increasing public debt by 46.7% of GDP by the end FY 2020/2021.

What this means is that generations of Ugandans are bound to keep repaying public debt at the expense of social sector development and service delivery improvements. Furthermore, Government has not prioritized gender responsiveness in spending as well as tax policy formulation and implementation and as a result there is minimal recognition of unpaid care work as the government is consistently under-investing in key sectors (i.e., health, education, and agriculture), which have a direct consequence of reducing the unpaid care workload on women. Women in Uganda spend 30 hours a week on unpaid domestic and care work (such as collecting firewood, fetching water, and taking care of the children, the sick and the elderly), more than twice the amount of time spent by men (12 hours a week)

Speaking at the launch of the report, Mr. Francis S Odokorach, Oxfam in Uganda Country Director, said, “Tax systems are, globally, seen as putting women at the margins, and not just in terms of the how taxes affect income, wealth, and behaviors directly. They are not designed in a way that gives sufficient attention to the net effect that tax and spending systems combined, both on paper and in practice, have on the immediate needs or strategic priorities that underpin gender inequalities. Tax laws in Uganda are annually amended with the focus of increasing tax revenue and establishing an “efficient” mode of collecting taxes. However, apart from tracking the revenue growth, the government should ascertain the impact of tax amendments on gender and marginalized groups in respect to the widening inequality gap. We, therefore, call on policymakers, through the number of recommendations in this report to Make Tax Fair.”

SEATINI Executive Director Ms. Jane Nalunga concluded that “It is possible to change this status quo. Despite Government efforts to increase women representation in fiscal policy formulation, public participation is still weak and low at 22%, according to the International Budget Project (IBP) 2019 Open Budget Survey. Therefore, an increase in Public Tax Education remains vital as this empowers citizens to shape transparency and accountability in Uganda.” This should not only be a Civil Society concern, but it is the responsibility of every citizen, to ensure equity and fairness through advocacy for a tax system that allows everyone to pay their fair share of tax. Transparent and gender-responsive spending will go a long way to enhance the quality of life of ordinary citizens in Uganda.”

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