Widening Uganda’s tax base: introducing environmental tax

The non-monetized population of Uganda is about 68%, with a large subsistence economy. Agriculture which is the main stay contributes 14.9% of the GDP, which employs about 80% of the population and yet its contribution to national GDP is almost 0.0%. The agricultural sector contribution to GDP was felt domestically when graduated tax was still levied, but due to its negative impact on income distribution through its steep regressiveness it was abolished (Bahigwa et.al, 2004).

Uganda has a narrow tax base compared to other countries in East Africa, with a stagnation at 13% of the GDP. The tax body has only targeted a small section of the population in formal employment and business, due to easy assessment. With an estimation of the 35 top tax payers accounting for 50% of all the tax revenue collected in the country (Senoga E, Matovu J & Twimukye E, 2009). Tax evasion and corruption in the tax administration has added an insult to injury. In the 1997 it is estimated that 46% of firms were evading taxes (Gauthier and Reinikka, 2001).

Uganda’s tax base can only be widened through policy reforms, which will including the tapping of the informal sector which for long has been under taxed or not taxed at all. Streamlining of tax incentives also known as investment incentives, which are given to foreign investors to lure them into the country, these incentives have political influence which need to be streamlined as we look at the benefits and costs vis-à-vis revenue foregone. Most of the tax evasion is involuntary but with the implementation of national identity card individuals and businesses can be tracked. The introduction of new tax handles will replace the abolished taxes and also levy new sources like property that is booming, environmental tax to reduce on the environmental degradation.

Environmental tax can be used in form of a market based instrument to address environmental problems, these can include taxes on polluting inputs, and emissions, the tax burden can be shifted from goods to economic bads like environmental pollution (Weizacker and Jesinghaus, 1992) Environmental taxes are estimated to have made up an average of 7.2% of government revenues in 1998 and represented 2.7% of GDP on average for example in OECD countries (OECD, 2001). In China under the pollution levy system which is one of the oldest in the developing world, during the period 1979 – 1995 it generate revenues of approximately $4 billion (Blackman and Harrington, 1999). The system produced revenues of approximately $446 million, which represented about 0.6% of national income in 1995 (Wang and Lu, 1996).

Ecological Tax Reforms as witnessed in the survey done in 14 developing countries little is currently know about them. The survey was conducted by the Belgian Development Cooperation in the following countries:  Uganda, Vietnam, Algeria, Ecuador, Benin, Niger, Bolivia, Peru, Mali, South Africa, Morocco, Senegal, Tanzania and Mozambique. The general findings showed that there were some initiatives in all countries but differed significantly, in Uganda current practices showed little initiative which was derived from little information that was found available. (KLIMOS Policy brief 3)

The Environmental Fiscal Reform for Poverty Reduction outlined the role donors can play in promoting Ecological Tax Reforms in developing countries, which included several important roles at different stages like policy development, information dissemination, agenda setting, support in monitoring and enforcement (Marx et al, 2011). They suggested that imposing an environmental tax on firms and companies that have a carbon foot print on the environment will raise more revenue. With that, they envision government will collect shs 100 billion. Civil Society Budget Advocacy Group (Wednesday, April 22, Daily Monitor)

By Kateregga Dennis, BA(ECON), Dip. IEL 

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