Types of Fund Accounting

UGANDA’S TAX SYSTEM.

INTRODUCTION

Taxation refers to a system used by the government through levying assessment to obtain money from people, industries and organizations. It is not relatively permanent but also compulsory and does not guarantee a direct relationship between the amount contributed by a citizen and the extent of the government services provided to him or her.

Taxation is the only practical means of raising the revenue used to finance government spending on the goods and services that most of the people demand. Taxation as a practice dates back to early civilization. In Biblical times for example, people were required to pay one tenth of their crops to the king to be spent on helping the poor. In Uganda, taxation traces its roots in the Hut Tax that was introduced with the signing of the 1900 Buganda Agreement between the locals and the British colonial masters. The Hut Tax (of 3 rupees per annum and a gun tax of 3 rupees) was a local government tax whose principle objective was to attract citizens into monetary production, and to mobilize voluntary labor for the production of cash crops and minerals for export. With the advent of colonialism the payment of taxes had to be in cash. The first tax legislation in Uganda was introduced in 1919 under the Local Authorities Ordinances, later followed by the Income Tax in 1939. This was collected jointly with the tax from the governments of Tanzania, then Tanganyika, Zanzibar, and Kenya. This tax was mainly paid by the European and Asian residents who were in business or who were employed while the majority of natives remained tax-exempt since they were peasants. After the creation of the East African High Commission, the states shared a number of tax departments and were jointly governed by Acts like Pay As You Earn (PAYE) till the collapse of the East African Community (EAC) in 1977. After the collapse of the EAC, each country had to develop its own tax system. However the developing countries have followed the tax system that was in place under their (former) colonial master.
In a well functioning tax system a government should be able to account for tax revenue entrusted to it by its people and the people in return should be able to know how their Tax has been used.

No. To a larger extent am not happy with the Uganda’s Tax system because of the following reasons.

Tax justice principle which talks about equalities in paying of taxes has failed, this is because there are a lot of equalities in paying of taxes. It talks about reducing poverty and inequality but the Ugandan case is very worrying because the rich are very rich while the poor are very poor hence being unfair.

The well to do firms have benefited from the various tax incentives such as the 10 year tax exemptions granted to agro-processing firms, thus further eroding the progressiveness of the income tax structure which has made it unfair.

More state revenue coming from regressive tax revenue sources such as the VAT, the tax burden continues to fall on the poor leaving the rich to be so or very rich.

Democratic principle fails, because government does not give accountability for what they do with tax revenues. Since most of the times they are always embezzled, thereby being unfair.

Social services such as roads, Energy and water have not been improved, while people pay high taxes. This therefore shows that the tax payer’s money is not being put in the right use, hence being unfair.

The tax system in Uganda fulfills the principle of non-quid proquo payment which means you don’t get the equivalent of what you pay, thereby making the tax unfair since people do not get the right or better services of what they pay.

The tax system in Uganda is unfair because they are revenue elastic in that as income goes up the tax yield goes up which reduces the social welfare of the tax payer by reducing their disposable incomes.

High taxes has discouraged labourforce participation, this is because it has adversely affected the ability and willingness to work, save and invest this is because the more you earn the more you are highly taxed and thereby affecting acquisition of skills.

High taxes has also discouraged investment, this is because small growing firms are not able to cope with the high taxes imposed on them since they have not maximized high profits to enable them run their businesses, thereby leading to their collapse hence increasing unemployment levels and high imports.

Tax has not been used as a developmental tool especially in the key Ugandan sectors of agriculture and health. For example, most of the hospitals being used are the former hospitals build by the colonialists, hence showing that the tax has not been used to improve on the infrastructures, thus unfair.

The tax system in Uganda does not fulfill the principle of neutrality. This is because the tax system has some favoritism to some people although it should be fair and imposed on neutral grounds for example; in Uganda, the Non Governmental Organizations do not pay taxes on certain imports that are intended to assist the Ugandan population especially on humanitarian basis.