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Local businesses

“Brutal enforcement and high penalties”

The government of Uganda urges to increase tax revenues and therefore enforces the collection of value-added tax (VAT). Its agency Uganda Revenue Authority (URA) ramped up the use of electronic fiscal receipting software. Many businesspeople are complaining because it seems to them like an increase in taxes.

The stringent enforcement of tax collection frustrates many Ugandans as businesses are still struggling to shake off the impacts of the Covid-19 pandemic and of multiple crises such as Russia’s war of aggression in Ukraine. Bijooto Christopher, a local businessman in Kampala’s popular downtown shopping area says: “We feel overwhelmed by the tax burden. Our goods are taxed severally at import, through indirect taxes and now, with this EFRIS system, we cannot make any profit. Doing business now feels futile!”

Launched in 2021, the electronic fiscal receipting software (EFRIS) initially targeted at manufacturers and later expanded to include supermarkets and larger businesses. It was engineered to curb tax evasion by improving the accuracy of recorded transactions. Thadeus Musoke Nagenda, the chairman of the Kampala City Traders Association and a local business owner, argues that EFRIS has practical and financial burdens on small businesses. 

He criticised the URA’s enforcement tactics and the steep penalties for non-compliance, which he claimed hinder widespread adoption of the system. “URA’s current brutal enforcement, as well as the high penalties of 6 million Uganda shillings per receipt (for failure to use the system), has greatly discouraged the adoption of the technology,” he said.

The challenge that local businesses face is partly because of a lack of tax education. Many have interpreted the enforcement of EFRIS to be an introduction of a new tax. However, as the government agency has explained, the system is merely meant to improve the efficiency in the collection of the value-added tax.

John Musinguzi Rujoki, the URA commissioner general, defended EFRIS, stating that it is intended to broaden the tax base, reduce sales suppression, and enhance Uganda’s tax-to-GDP ratio, which currently stands at approximately 14 %. “The initiative is designed not only to increase our tax collection but to also alleviate the tax burden on compliant taxpayers, thus fostering equal contributions towards national economic growth and development,” he said.

Musinguzi points to the disparities in tax burdens among countries, noting that Uganda’s tax burden is significantly lower than that of several European nations. “Currently, the tax burden in Uganda is about 11.8 %, compared to Kenya at 17 %, and significantly lower than the Netherlands at 49 %, Denmark at 47 %, and Italy at 42 %,” he said. The tax burden of a country refers to the proportion of income that individuals and companies have to pay to the state in the form of taxes.

Musinguzi said URA has recorded success in expanding the tax base from 1.7 million to around 4.2 million taxpayers over the past four years. He adds that EFRIS is already implemented in neighbouring countries like Kenya, Tanzania, and Ethiopia, and is crucial for increasing tax revenues.

Sheillah Abaho is a Uganda writer based in Kampala, Uganda.