URA loses Shs 10bn tax to non-compliant business entities in Kampala 

The Uganda Revenue Authority (URA) lost over Shs 10 billion tax to non-compliance of business entities in Kampala in 2022, a research paper released by Rose Camille Vincent, Stephan Dietrich and Kyle McNabb indicates.

Dubbed ‘Compliance rates with local and national business taxes’, the research paper indicates that the money exceeds two per cent of the Kampala Capital City Authority’s (KCCA) total budget for the financial year 2022/23. The significant shortfall in tax revenue has severe implications for public finance and the provision of essential public goods and services.

Businesses operating in Kampala are levied at the local level by KCCA and at the national level by URA. Both agencies have been operating independently in their enforcement of business taxes despite recent initiatives aiming at improving taxpayers’ registration and ensuring coherence across registries.

“High non-compliance rates among businesses in Kampala, even among larger corporate firms. Less than 15 per cent of all firms are found in both registries and an annual basis and across the period of 2015-2021. Of those parent firms that are fully compliant with corporate income tax payment (with the URA), on average, more than half have not renewed trade licenses with KCCA for all their branches across the same period, resulting in a loss of more than Shs 16.1 billion ($4.31 million) in 2020-2021 combined. Fully informal firms are not included in the non-compliance estimates, which mean that in reality the loss is even higher,” Dr Kyle McNabb said.

He said the findings of the analysis emphasize the need for closer coordination between tax authorities at the local and national levels. Strengthening communication and information sharing between the KCCA and URA can help detect non-compliance practices and improve revenue collection. Thus, policymakers should consider mechanisms for enhanced collaboration and information exchange between the authorities.

He urged policymakers to focus on raising awareness about tax obligations across the board and the benefits of compliance among businesses, implement targeted education and outreach programs particularly in areas with lower compliance rates to improve the overall tax culture and reduce non-compliance.

“Policymakers should leverage technological advancements and data analytics to improve tax administration and identify non-compliant businesses more accurately. Integrating different data sources and conducting regular audits can provide valuable insights for policymaking and enforcement efforts. New data sources such as street view or satellite imagery can help monitor compliance and improve tax collection efficiency,” he said.