Why new anti-corruption unit may offer temporary relief to revenue leakages 

Tax has perhaps never occupied such an important public discourse and attention than it does today.

Amidst a series of serious challenges like debt distress and dwindling donor support to Uganda’s budget, and with the ever-shrinking civic space, domestic revenue mobilization has since been the most talked-about alternative for government survival.

However, despite government efforts to increase domestic revenues to finance public expenditure, recent data from the URA for the financial year 2022/2023 shows extremely unimpressive performance of many of the tax heads.

This poor performance has been allegedly attributed to tax evasion and avoidance, mainly fuelled by rampant corruption among technocrats and politically- exposed persons.

In a move to address significant revenue leakages, President Museveni has established the State House Revenue Intelligence and Strategic Operations Unit, tasked with monitoring the Uganda Revenue Authority (URA), enhancing tax collection efficiency by closing all revenue leakages in order to boost revenue collections by targeting corruption.

The unit is specifically tasked with oversight on URA operations and fighting corruption within the tax administration system. Establishing a new unit to reverse a trend of annual multi-billion revenue losses resulting from corruption and inefficiencies at the country’s tax body may be a move with noble intentions. However, the creation of the unit might only provide a temporary fix.

Tax revenue leakages refer to the loss of potential tax revenue that a government should collect but does not due to various factors such as tax evasion and avoidance, among other factors. These leakages reduce the funds available for public expenditure and can significantly impact a country’s ability to provide public services and invest in infrastructure.

Recent scandals have underscored the necessity for an independent entity to supervise the operations of the nation’s tax agency. In the past, the president has frequently remarked on his shock at the speedwith which URA staff and technocrats at ministry of finance acquire wealth. On various occasions, this has resulted in many being forced to leave their positions.

URA commissioner general John Rujoki Musinguzi also acknowledged the presence of corruption within the authority but affirmed that the new management is actively combating it. He reported that over the past four years, more than 100 staff members have been dismissed due to corruption.

Efficiency in the tax administration system is important as it directly impacts a government’s ability to collect revenue effectively and fund essential public services. A well-functioning tax administration system ensures that taxes are collected in a timely and accurate manner, reducing the potential for revenue leakages due to evasion, avoidance, or administrative errors.

By streamlining processes, improving transparency and leveraging technology, tax authorities can enhance compliance, minimize corruption, and foster a culture of trust and cooperation among taxpayers. Ultimately, efficient tax administration supports sustainable economic growth and development by ensuring that governments have the necessary resources to invest in infrastructure, education, healthcare, and other critical areas.

When it comes to tax evasion, which is an illegal activity in which a person or entity deliberately avoids paying a true tax liability, we see that Uganda is also performing poorly to combat it. This mainly manifests in practices such as: showing false records, hiding income, under-declaring profits, overstating deductions, among others.

President Museveni is now thinking of an obvious approach to corruption by creating the State House Revenue Intelligence and Strategic Operations Unit. This, in addition to many other government agencies and units like the Financial Intelligence Authority, Money Laundering Inspection Unit in Bank of Uganda, and parliamentary committees, among others, may not provide a lasting solution to increase revenues.

A number of sustainable tax policies and administration practices need to be rethought for a more robust tax system to guarantee sustained domestic revenue mobilization. Given the critical role tax plays in Uganda’s development, tax policy should not only focus on revenue collection but also support responsible consumption and the distributional impact on the economy.

An ordinary taxpayer will better understand the importance and impact of paying or not paying tax when both their local or district leader mobilizes them for the cause.

Where there is technical-level involvement in tax policy formulation processes without political will and well-intentioned political level engagement, domestic revenue collections may keep dwindling. Hence, political-level leaders need to play a role if our domestic revenue mobilization strategies are to yield the intended results.

Since Uganda runs a self-assessment tax regime, to nurture the culture of voluntary compliance, the government must continually spend on projects that directly benefit the citizenry, such as fixing roads, providing medicines in government health facilities, and ensuring quality education, among other expenditures.

There is also need to rethink the tax incentive governance process. The auditor general’s report of 2022/2023 revealed that close to Shs 1.4 trillion is lost in form of tax incentives annually. This practice of giving away tax concessions without a well-researched accountability mechanism of how the exempted firms will benefit, hurts the potential domestic revenue mobilized for public expenditure.

Expeditious resolution of tax disputes by the courts should be prioritized, since any delay does not only affect taxpayers and operations of businesses but also frustrates timely collection of government taxes.

The tribunal must start thinking about robust electronic case management system to improve on its efficiency. It is also important to remember that a well-thought-out tax policy has inherent safety mechanisms to fight tax evasion and avoidance while delivering on its core mandate of revenue collection.

ddunguadrian@gmail.com

The writer is a certified tax advisor