Is there hope for taxpayers after president’s assent to taxation bills? 

After close to two months of waiting, President Museveni has finally assented to the taxation bills that were presented to him by parliament.

In a press release dated August 21, 2023, the State House Presidential Press Unit stated that the president had signed seven taxation bills into law.

The Amendment bills that have been assented to include the Stamp Duty (Amendment) Bill, the Foreign Exchange (Amendment) Bill, the Excise Duty (Amendment) Bill, the Tax Procedures Code (Amendment) Bill, The Income Tax (Amendment) Bill, the Financial Institutions (Amendment) Bill and the Value Added Tax (Amendment) Bill of 2023.

It is not yet clear whether these bills were assented to as a result of the pilling pressure from effects of the World Bank’s decision to suspend all future funding to Uganda’s projects over the enactment of the Anti-Homosexuality Act or not.

The president had earlier, in a letter dated June 26, 2023, rejected some of these bills like the Income Tax (Amendment) Bill over concerns about implementation of certain provisions, among other reasons. Immediately following this, parliament got back to the drawing board and made amends to the proposals to capture the concerns raised by the president.

The most outstanding provision from which taxpayers will benefit is the waiver of interest and penalty. The Tax Procedure (Amendment) Act provides that where a taxpayer voluntarily pays the principal outstanding tax as at June 30, 2023, the commissioner general is mandated to waive any interest and penalties that had accrued on the taxpayer’s ledger as at that time.

However, for the taxpayer to benefit from this waiver, he or she must pay the principal outstanding tax by December 31, 2023. The purpose of this, as was indicated in the report issued by the committee on Finance, Planning and Economic Development on the Tax Procedures Code (Amendment) Bill to the Office of the Clerk to Parliament on May 1, 2023, is to limit waiving of penalty and interest on principal tax to only compliant taxpayers that voluntarily pay their taxes.

The previous position on waiver of interest and penalty had been structured in such a way that only compliant taxpayers would benefit from it. In as far as this was discriminatory to a certain group of taxpayers, it was aimed at ensuring that the incentive is benefited by only those whose past tax records had showed consisted compliance.

The advantages of this amendment notwithstanding, there is need for extreme caution to be taken whilst implementing this incentive. There is a likelihood that such an incentive could be misused by non-compliant taxpayers who will benefit just like the compliant ones for as long as they voluntarily pay their taxes.

In effect, non-compliant taxpayers will be rewarded for their non-compliance! This will eventually result into perverse incentive. A perverse incentive is one that comes with unintended and undesired results that are contrary to the intentions of the designers. One of the most famous perverse incentives was India’s cobra effect of the early 1900s.

During the British colonial rule, the British government at the time was concerned about the increasing number of venomous cobras in Delhi, India. In order to effectively reduce the number of these snakes, the government offered a huge bounty for every dead cobra. The campaign had become successful at the start and a large number of snakes were killed for the reward.

However, as time went by, the innovative and ingenious people resorted to breeding cobras in order to get an award from government. As soon as the government became aware of this, the reward was scrapped. This merely exacerbated the situation since the formerly innovative cobra breeders got released their ‘stock’ of cobras that were no longer of importance to them hence increasing the number of cobras.

Since 2020, several amendments have been made in respect to waiver of interest and penalty. With these several amendments, taxpayers might take a back seat and deliberately refuse to pay taxes without fear that they will be faced with interest or penal tax on the understanding that parliament will eventually come to their rescue and waive the accrued penalty or interest.

After all, it (parliament) has waived them a previous three times before and is likely to waive them again in future! Additionally, there is likely to be a lot of uncertainty in implementation of this provision especially in light of the previous amendments on waivers of interest and penalties.

This, like the cobra effect, might have severe negative undesired and unintended results. In order to avoid this, there is need for parliament, in conjunction with Uganda Revenue Authority and ministry of Finance, to come up with a procedural manual to guide on the practical concerns and on how best this incentive can be implemented in order to meet its desired effects.

Once this is done, taxpayers will successfully benefit from it and compliance will be encouraged.

The writer is an advocate of the High court and a tax expert.