REPORT

ON

GENDER BUDGET ANALYSIS OF TAXATION IN UGANDA

FOCUSING ON

CENTRAL GOVERNMENT TAXATION CARRIED OUT BY UGANDA REVENUE AUTHORITY (URA)

Research led by:Wanyaka S. H.

Assisted by:Kimule Sulait and Katamba Francis

November 2003Table of contents

1 Introduction 6

1.1 Background 6

1.2 Aim of the study 6

1.3 Mandate for engendering taxation policy 7

2 Methodology and Approach 8

2.1 Introduction 8

2.2 Literature review 8

2.3 Gender Methodologies Used 92.3.1 Gender Aware Policy Appraisal 102.3.2 Beneficiary Assessment 102.3.3 Gender Disaggregated Public Expenditure Incidence Analysis 102.3.4 Gender Disaggregated Analysis of the Impact of the Budget on Time Use 102.3.5 Gender Aware Medium Term Economic Policy Framework 102.3.6 Gender Responsive Budget Statements 10

2.4 Data collection and analysis 112.4.1 Meetings with URA Staff 112.4.2 Preparation of Study Instruments 112.4.3 Individual Interviews 112.4.4 Analysis and Consolidation 112.4.5 Consensus Building and Dissemination Meeting 12

3 The Actors in Tax Policy Formulation 13

3.1 Introduction 13

3.2 MFPED 13

3.3 Civil Society 13

3.4 The Organized Trading Community 13

3.5 Parliament 14

4 Gender Situational Analysis of URA 15

4.1 Management and Administration 15

4.2 Departments 164.2.1 Commissioner General’s Office 174.2.2 Legal Services and Board Secretariat 184.2.3 Customs and Excise Department 184.2.4 Domestic Indirect Taxes Department 184.2.5 Domestic Direct Taxes Department 184.2.6 Expansion and Collection Department 194.2.7 Information Technology and Corporate Services 194.2.8 Internal Audit and Tax Investigation 194.2.9 Finance Department 194.2.10 Human Resources Department 20

5 Gender Analysis of URA policy 21

5.1 Introduction 21

5.2 Rationale for Transfer of the Tax Colleciton Function 21

5.3 Results of the Transfer 21

5.4 Functions of the URA 22

5.5 Analysis of the URA Corporate Plan 2002/03-2006/07 222

5.5.1 History of Corporate Planning 22

5.6 URA Achievements for 2001/02 23

5.7 Constraints 24

6 6. Gender Analysis of URA Budget for 2001/02 and 2002/03 25

6.1 Preparation of the URA Budget 25

7 Departmental allocations of the 2002/03 Budget 26

7.1 Activities that Affect Vulnerable Groups 27

8 Qualitative and Quantitative Gender Analysis 28

8.1 Uganda Government Tax Structure in 2001/02 28

8.2 Tax revenue performance for 2001/02 31

8.3 Impact of Taxation Policy on Women and Men 328.3.1 Difficulties in tax collection in Uganda 32

8.4 Composition of Tax Revenue 32

8.5 Selecting the Right Tax System 33

8.6 Tax Policy Challenges Facing Uganda 34

8.7 Trends in tax collections over the last three years 36

8.8 How much would be paid by men or women 36

8.9 Categories of poor women and men 378.9.1 Peasant farmers 378.9.2 Rural landless people 378.9.3 The urban unemployed 388.9.4 School dropouts 388.9.5 Low paid formal sector workers 388.9.6 Informal sector workers 39

8.10 How Taxes Impact on Social and Economic Activities 398.10.1 Impact of Direct Domestic Taxes on the Poor 408.10.2 Impact of Indirect Taxes on the Poor 40

8.11 Gender analysis of taxation of goods mainly used by women in Finance Act 2002 41

9 Gender Analysis of Tax Reform Measures 43

9.1 Tax Policy Reforms for 2001/02 439.1.1 Cigarettes and petroleum 439.1.2 Zero Rated and Exempted Items 439.1.3 Reduction in Import Duty 449.1.4 Value Added Tax (VAT) 449.1.5 Excise Duty 449.1.6 Non-tax revenue 45

9.2 Proposed Changes in the Application of the Income Tax Act, 1997 45

9.3 Tax Administration Challenges 46

9.4 Tax Policy Changes for 2002/03 469.4.1 Major tax proposals 479.4.2 Challenges for the Tax Policies 49

10 Gender Analysis of Tax Incentives 50

10.1 Tax Holidays 50

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10.2 Tax Credits and Investment Allowances 50

10.3 Accelerated Depreciation 51

10.4 Investment Subsidies 51

10.5 Indirect Tax Incentives 51

10.6 Administrative Mechanisms 51

10.7 Conclusion 52

11 Findings and Conclusions 53

12 Appendix 9: People interviewed 57

13 Appendix 10: Tax laws 58

14 Appendix 12: References 59

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Abbreviations and Acronyms

AC Assistant CommissionerBARS Business Analysis and Revenue Support in URACG Commissioner GeneralFOWODE Forum for Women in DevelopmentGDP Gross domestic productHS Code Harmonized System Code (by WCO)MEC Management Executive CommitteeMFPED Ministry of Finance Planning and Economic DevelopmentMTTI Ministry of Tourism Trade and IndustryNSSF National Social Security FundPAYE Pay as You Earn taxST Secretary to the TreasuryTAT Tax Appeals TribunalTINs Tax Identification NumbersTPD Tax Policy DepartmentUIA Uganda Investment Authority URA Uganda Revenue AuthorityWCO World Customs Organization.GOU Government of Uganda

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1 Introduction1.1 BackgroundA tax is an involuntary contribution made to government. Government uses the money collected to attain its economic, social and political objectives. It is important to understand this motivation for collecting taxes if we want to influence tax policy. Governments levy taxes and collect other revenue for the following reasons, among others: To finance public expenditure; To correct market imperfections; and To guide economic activities in the country.The logo for the Uganda Revenue Authority contains the motto: ‘Taxes for National Development’. These first sections talk about tax, but the paper discusses both tax and other forms of revenue. The URA, which is the focus of this study, is mandated to collect government revenue on behalf of the state. It collects both tax and non-tax revenue such as fees and licenses.

A number of studies on gender and budgets have been undertaken both inside and outside Uganda. Most of the emphasis in these studies has been on public expenditure and its impact on men and women and vulnerable groups such as children and people with disabilities. This study focuses, in particular, on tax policy formulation and Central Government tax administration carried out by the URA.

An Act of Parliament, the Uganda Revenue Authority Statute of 1991, set up the URA in September 1991. The vision of the URA is to collect revenue that will fully finance the Uganda government’s recurrent and development expenditure by attaining a tax:gross domestic product (GDP) ratio of at least 24:100.

1.2 Aim of the studyThe main aim of the study is to analyse tax policy formulation and tax administration with a view to identifying intervention points for addressing gender concerns. The main role-players in tax policy formulation and administration are the Tax Policy Department (TPD) of the Ministry of Finance, Planning and Economic Development (MFPED) and the URA. Other studies sponsored by FOWODE deal with the MFPED. This report therefore focuses primarily on the URA.

The study discusses the following issues from a gender perspective: Situational analysis of the URA URA policy statement for 2001/02 URA budget for 2001/02 The central government taxation structure Taxation policy at the national level Incidence of taxation by gender Taxation on goods and services that are mostly used by women and other

marginalized groups6

Tax incentives on selected goods and services Taxation reforms during the years 2001 to 2003.

The motivation for the study is the need to ensure that policy and budget decisions take gender perspectives into account and that policies on gender equality are inadequately resourced. A related objective is to increase women's participation in economic processes by making policies that address their concerns.

1.3 Mandate for engendering taxation policyThere is a very clear mandate for incorporating gender perspectives into budget processes, including taxation. The outcomes document of the twenty-third special session of the United Nations General Assembly to follow up implementation of the Beijing Platform for Action in June 2000 (A/S-23/10/Rev.1) reads a follows:

73 (b). Incorporate a gender perspective into the design, development, adoption and execution of all budgetary processes, as appropriate, in order to promote equitable, effective and appropriate resource allocation and establish adequate budgetary allocations to support gender equality and development programmes that enhance women's empowerment and develop the necessary analytical and methodological tools and mechanisms for monitoring and evaluation;

There are also provisions for equality in the Constitution of Uganda and other national laws and processes that provide motivation for engendering taxation policies. Chapter four of the Constitution is particularly emphatic about non-discriminatory provisions.

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2 Methodology and Approach2.1 IntroductionThe role of each of the important actors in relation to taxation was examined. Information-gathering both structured and unstructured discussions with informants. The list of people met is attached as Appendix 9. The researchers also gathered information through observation and brainstorming sessions. These were facilitated by the Corporate Service division of URA, involving round table discussions. The study was also informed by a preliminary review of the literature.

Information collected from each actor was cross-checked with information from other actors to verify its validity. On the whole, the information from the different actors complemented rather than contradicted each other.

2.2 Literature reviewBudlender et al (2002), Bartle et al (2002), and Smith (1996) point out that gender analysis of revenue is still relatively undeveloped. They note that countries like Australia, United Kingdom and South Africa have done some initial work in the area.

When carrying out a gender sensitive analysis on revenue, a number of issues need to be taken into consideration. Budlender et al (2002) suggest that gender-sensitive analysis of government revenues is more difficult, and often politically more sensitive, than gender analysis of government expenditures. Nevertheless, it is possible and desirable to undertake an analysis.

Budlender et al (2002) provide a framework for gender budget analysis of public revenue. They note that taxation; donor funds and other revenues together constitute total revenue. Taxation comprises direct (e.g. income tax), indirect taxes (e.g. value-added tax (VAT), and customs and excise duty) and tax expenditures (e.g. incentives and rebates). Donor funds comprise loans and grants. Other revenues include user fees and licenses.

Budlender et al (2002) suggest that the area of revenue which is usually the easiest to analyse is that of personal income tax, as it can be analysed on the basis of whether the taxpayer is female or male. Generally, men contribute a larger share of government revenue than women because more men than women usually earn cash, they generally earn more than women, and they therefore tend to pay more tax. For example, Budlender et al note that in Australia, in 1990/91 women constituted 43% of all taxpayers and paid 31% of the total income tax.

Other taxes are more complicated to analyse because many are paid by households rather than by individuals. This is clear, for example, with VAT. Taxes on goods and services such as alcohol and tobacco tend to affect men more than women to the extent that men are more likely than women to drink and smoke. However, these taxes may have a negative effect on women if

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higher taxes on these goods result in men’s withholding greater amounts of money from the common household’s budget.

Budlender et al (2002) describe three problems that can be encountered in conducting a gendered analysis of revenue: Authorities may not have taken the trouble to collect disaggregated

information, or information and taxation may be based on married couples rather than (male or female) individuals.

Individual taxpayers who earn below a certain threshold do not submit individual tax returns, with their contributions being paid as lump payments by the employer.

Particularly in poorer countries, individual taxpayers comprise a very small proportion of the population, hence personal income taxation provides a relatively small proportion of government revenue.

Smith (2001) notes that the revenue side of the budget, and taxation policy in particular, can have direct redistribution effects which can either benefit or disadvantage groups such as women and the poor. His paper traces the impact of changes in taxation policy on women in South Africa since 1994, as the country moved away from a policy that was overtly discriminatory to one that implicitly disadvantaged certain groups.

An earlier South African study by Hartzenberg (1996) focused on personal income taxes, retirement benefits, unemployment insurance, medical aid contributions, corporate taxes and VAT. Like other studies in this field, this study was constrained by the lack of official statistics on women’s share of the tax burden.

St Hill (2001) emphasises the need to pay attention to both the individual and the family in order to reflect the contribution of unpaid home-based activity to the economy. Most of the care economy is the preserve of women. If gender effects are to be seen clearly and factored into policy planning then it is essential to understand the distinct impacts of budgets at the individual and household level. The word ‘budgets’ applies to both expenditure and taxation aspects.

In addition to writings on gender and revenue, this study used documents such as Tax Laws, including the Finance Act of 2002. The full list of laws consulted is listed in Appendix 10. The Internet, and the URA website (www.ugrevenue.com) in particular, was also a useful source. Other sources, such as budget speeches, the URA Corporate Plan, URA Business Plan, and URA Human Resource Manual are listed in Appendix 12.

2.3 Gender Methodologies UsedThe study drew on a range of different methodologies, which are commonly used for gender analysis of expenditure.

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2.3.1Gender Aware Policy AppraisalThis is the analysis from a gender perspective of the policies and programmes funded through the budget. The analysis seeks to answer the following question: In what ways are the policies and their associated resource allocations likely to impact on gender inequality? In this study we examine, among others, the tax policy changes effected during 2000/2001 and 2001/2002.

2.3.2Beneficiary AssessmentThis approach seeks to ascertain the actual or potential impact of public services to the beneficiary. Usually the assessment is done by the beneficiaries themselves. In this study we do the assessment, rather than asking the beneficiaries. In terms of focus, we look at the structure of allowances offered to URA staff and identify those that ware likely to benefit women more.

2.3.3Gender Disaggregated Public Expenditure Incidence AnalysisThis method estimates the distribution of budget resources or changes in resources among female and male by measuring the unit costs of providing a given service and multiplying that cost by the number of units used by each group. In this study we look at the URA budget for 2002/03. We assume that the development budget of the different URA departments is largely gender-neutral in its allocation of resources for office construction/renovation, furniture and so on. There was no evidence of a special part of the development budget of URA spent on special gender facilities for female and male staff. However, the recurrent budget expenditures can include gender-specific allocations, for example on employee/staff costs and welfare schemes like maternity allowance.

2.3.4Gender Disaggregated Analysis of the Impact of the Budget on Time Use

This method establishes the link between budget allocations and their effects on how individuals within households spend their time. It is premised on the assumption that changes in some forms of public expenditure and revenue raising are likely to affect the amount of time that women (and men) spend on unpaid care work. In the study we look at the URA medical scheme to verify this premise.

2.3.5Gender Aware Medium Term Economic Policy FrameworkThis method is used to assess the impact of economic policies on women, focusing on aggregate fiscal and monetary policies designed to reduce poverty. In the study we focus on the Medium Term Expenditure Framework (MTEF) and the Medium Term Budget Framework (MTBF) and single out those tax measures that address gender concerns in the medium term. We look, in particular, at the composition of incentives for export promotion like tax exemptions, holidays, and rebates, zero-rated VAT goods and supplies.

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2.3.6Gender Responsive Budget StatementsThis is a statement that reviews the budget using some of the above tools and summarizes its implications for gender equality with different indicators like the gender balance in jobs, contracts, training or share of public service expenditure used mainly by women. These statements are done by the government and not by the researcher. However, the researcher analyses government budget statements to see whether and how gender issues are addressed.

2.4 Data collection and analysis

2.4.1Meetings with URA StaffAt the commencement of the assignment the researcher held meetings and brainstorming sessions with URA officers on issues to be considered during the assignment. The meetings were also aimed at securing the permission of the Commissioner General (CG) to access the relevant literature and to interview her staff. To facilitate access, Hon. Beatrice Kiraso, Chairperson of the Budget Committee, kindly provided a letter of introduction for the researchers to the CG (see Appendix C). Obtaining access to the information took two weeks.

In addition to obtaining access, the inception meetings with URA officers helped to: Familiarise the researchers with programmes and activities of URA as well

as with the other target groups or stakeholders affected by URA activities. Obtain documentation that had not already been collected by the

researchers prior to the assignment. Familiarise the researchers with the current institutional organizational

state of URA. Agree on the structure and content of the structured questionnaire.

2.4.2Preparation of Study InstrumentsIn order to focus the interviews, an interview guide/checklist was developed. This checklist aimed to provide consistency of information. However, the researchers did not stick only to the checklist but, in addition, probed the responses of interviewees. A questionnaire was also developed in relation to data needed on various aspects of the study (See Appendix B).

2.4.3 Individual InterviewsIn-depth interviews were held with URA officials, the Commissioner General and her key staff. These interviews aimed to gain deeper understanding of issues encountered in the execution of the taxation mandates of URA and MFPED. The interviews were also intended to verify information already collected, correct any misunderstanding, fill gaps and solicit their perceptions on taxation matters.

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2.4.4Analysis and ConsolidationThe information obtained from the various sources was analyzed by the researchers. At the end of the consultations, the various responses were consolidated into one report.

2.4.5Consensus Building and Dissemination MeetingThe draft report was then presented to a meeting of major stakeholders in August and September 2003 to solicit feedback on key findings and recommendations. The comments from the meeting were then incorporated into this report.

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3 The Actors in Tax Policy FormulationIn order to guide any person seeking to influence tax policy this section outlines the roles of key actors in tax policy formulation and implementation.

3.1 IntroductionTax policy formulation involves making proposals for new or amended taxes, including motivations for the tax and strategies for its collection. This function is vested in the MFPED and is carried out on the basis of technical advice from the TPD.

Moves to influence tax policy need to take into account the different actors and their roles in relation to tax policy, implementation and monitoring. An understanding of these actors and their roles informs the entry points for any lobbying. This chapter therefore describes the different actors and their roles.

3.2 MFPEDThe MFPED thus makes proposals both for expenditure and for methods of funding that expenditure. They also set targets for revenue collection by URA. These targets are based on assumptions about the economy and the need to raise revenue for funding government programmes. Assumptions include exchange rates, real GDP growth, nominal GDP growth, inflation, and volume growth for dry and wet imports. Wet imports refer to Petroleum products, which account for 30% of Customs taxes, warranting special attention, dry imports refer to the rest.

The Tax Policy Department (TPD) of the Ministry of Finance, Planning and Economic Development monitors the attainment of the targets in order to avoid shortfalls that could disrupt expenditure plans and programmes. Revenue shortfalls also have an impact on the size of the budget deficit which, in turn, has other macroeconomic consequences, for example in relation to exchange rates.

3.3 Civil Society Civil society often has concerns about particular taxes or tax waivers. Some civil society groups and individuals have attempted to hold the Government accountable for its taxation policies. These bodies lobby the Government to request the imposition or abolition of particular taxes. A number of pressure groups like environmental NGOs advocate for higher taxes on polythene products to preserve the environment. There is affirmative action in Uganda whereby female candidates have preferential entry requirements to tertiary institutions.

3.4 The Organized Trading Community The Trading/Business Community represents a large portion of the tax paying public. This group of people therefore has a big stake in tax policy formulation. The actions of the business community in relation to tax policy are sometimes carried out individually and at other times collectively. Affluent individuals

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with large businesses and/or holding political positions can influence tax policy by lobbying or intimidating the Government. One example is the VAT strike in 1996. A second example is the collective bargaining entered into by institutions such as the Uganda Manufacturers Association (UMA), Uganda Export Promotion Board (UEPB) and Uganda Investment Authority (UIA). These organizations enter into negotiations with the government before the national Budget is read.

Lobbying can take several forms, including mass protests, advising the Minister of Finance or the President, talking to individual Members of Parliament, and appearing before or submitting memoranda to the relevant Committees of Parliament such as the Committee on National Economy, Committee on Finance, Planning and Economic Development and the Budget Committee.

3.5 ParliamentAccording to Article 152 of the Constitution, no tax shall be imposed except under the authority of an Act of Parliament. Any person (or institution) legally empowered to impose or waive a tax is required to report periodically to Parliament. This makes Parliament the supreme authority in taxation policy.

The tax laws enacted by Parliament are handed down to Uganda Revenue Authority for implementation and enforcement. Interpretation of the tax laws is vested in the Attorney General with powers of arbitration of tax disputes vested in courts of law and the Tax Appeals Tribunal.

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4 Gender Situational Analysis of URA4.1 Management and AdministrationURA is managed and administered by a Board of Directors. The Board is the policy making body and exercises a general oversight function. The Management of URA is headed by the Commissioner General, who is assisted by two Deputy Commissioner Generals and nine other Commissioners.

The composition of the Board is as follows. The Chairperson, appointed by MFPED The Commissioner General The ST The Permanent Secretary (PS) of The Ministry of Tourism, Trade and

Industry Three members from the Private Sector appointed by the Minister of

Finance, Planning and Economic Development.

Table 3 shows the sex distribution of the seven board members in mid-2003. Overall, there are five men and two women.

Table 1 Table 3. Sex distribution of URA board members, 2003Men Women Total

Chairperson 1 - 1Commissioner General - 1 1ST 1 - 1PS/MTTI 1 - 1Members 2 1 3Total 5 2 7

The Management Executive Committee (MEC) is responsible for the day-to-day administration and operation of the Authority, and for making recommendations to the Board of Directors for new policy initiatives. The MEC is led by the Commissioner General as the Chief Executive. Its members are nine heads of departments two deputy Commissioner and three heads of units that are not necessarily departments but have implementation functions are observers at MEC meetings. These include the Board Secretary and Assistant Commissioner Training and Public relations.

The structure of MEC is therefore as shown in Table 4. Eight of the 13 members are women.

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Table 2 Table 4: Sex distribution of MEC membersFemale Male Total

Chairperson (CG)1 - 1

Secretary 1 - 1Members 5 4 9Observers 1 1 2Total 8 5 13

4.2 DepartmentsA restructuring exercise carried out in July 2002 resulted in significant changes in the organizational structure of the URA. The current departments are: Commissioner General's Office Customs & Excise Domestic Indirect Taxes Domestic Direct Taxes Expansion & Collection Legal Services And Board Secretariat Information Technology And Corporate Services Internal Audit And Tax Investigation Finance Human Resource

The following sub-sections provide a description of the functions of each department. Table 3 shows the number of male and female staff in each department as at July 2002. The gender situational analysis for each department is set out in appendices 1a through 7b. (Appendices attached on a separate file)

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Table 3 Sex breakdown of staffing of URA Departments, July 2002Females 696Males 1418TOTAL NO. OF EMPLOYEES 2114

KEY M FDEPARTMENT 01 56 21 CGO Commissioner General's OfficeDEPARTMENT 02 9 9 L & B S Legal and Board SecretariatDEPARTMENT 03 107 49 FIN FinanceDEPARTMENT 04 483 191 CUE Customs and ExciseDEPARTMENT 05 99 63 DDT Domestic Direct TaxesDEPARTMENT 06 40 41 IT&CS Information Technology & CSDEPARTMENT 07 19 22 HR Human ResourcesDEPARTMENT 08 80 49 DIT Domestic Indirect TaxesDEPARTMENT 09 331 181 EX&C Expansion and CollectionDEPARTMENT 10 53 27 IA&TI Internal Audit & Tax InvestigationDEPARTMENT 11 89 22 ADMIN AdministrationDEPARTMENT 12 50 21 RPS Revenue Protection Service

4.2.1Commissioner General’s OfficeThe Commissioner General is the Chief Executive of the URA and is responsible for the day-to-day operations of the Authority, management of the entire organization and control of all the Departments. The Commissioner General’s office comprises two Deputy Commissioner Generals, one in charge of Revenue and the other in charge of Administration.

The Commissioner General is directly responsible for the Staff Monitoring Unit and Public Relations. The Deputy Commissioner General – Administration is directly responsible for the Administration Unit and the Deputy Commissioner General – Revenue is directly responsible for the Tax Education Unit, Business Analysis and Revenue Support and Revenue Protection Services.

The Administration Unit is responsible for the management of all administrative units of the Authority and ensures consistent and clear administrative machinery in URA. This unit includes security of URA property, the procurement systems, estates management and the administration of general support services including transport and office superintendence.

The Tax Education Unit is responsible for the sensitisation of the public on tax related information. The unit is responsible for producing up-dated tax reading materials in the form of tax guides and leaflets. The Unit is also charged with the responsibility of identifying areas where tax sensitisation is needed and the most appropriate media to convey the information to the public.

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The Public Relations Unit provides the first point of contact between the URA and the general public. It liaises with the aim of consistently improving the corporate image of the institution.

The Business Analysis and Revenue Support unit is a new division. It is responsible for professional and technical support activities in the Authority. The functions of research and statistics are handled by this unit. Difficult cases of arrears are handled through the debt collection unit.

The aim of the Staff Monitoring Unit is to preserve a high calibre staff in the URA. This Unit pursues cases of suspected staff malpractice and ensures that the right disciplinary actions are taken.

The Revenue Protection Services unit is entrusted with the protection of tax revenue. The goal of this unit is to minimise tax leakages especially in respect of international trade taxes. The success of this unit is judged on the basis of reduction in smuggling and evasion of trade taxes.

4.2.2Legal Services and Board SecretariatThis department is headed by the Board Secretary/Head Legal. It advises the Authority on legal matters, and represents the URA in cases requiring litigation. The Department is headed by a Commissioner and employed seven advocates as well as 10 support staff.

4.2.3Customs and Excise DepartmentA Commissioner heads this department, assisted by two Deputies and four Assistant Commissioners. The Customs and Excise department facilitates international trade, collects revenues due after assessment, and exercises quality control of imported goods so as to prevent contraband. The department also ensures protection of local industry and society.

4.2.4Domestic Indirect Taxes DepartmentA commissioner heads the department, assisted by one Deputy and two Assistant Commissioners. The Domestic Indirect Taxes department aims to maximise local indirect tax, with an emphasis on VAT, through execution of audits and assessment functions.

4.2.5Domestic Direct Taxes DepartmentA commissioner heads the department, assisted by one Deputy and two Assistant Commissioners. The department’s emphasis is on income tax. It at tempts to minimise collusion and tax leakages and maximise direct local tax revenue and compliance to the Income Tax Act of 1997. The department aims to improve the proportionate share of local direct taxes to total tax revenue, with a goal of attaining the sub-Saharan African average of 34%.

4.2.6Expansion and Collection DepartmentA commissioner heads the department, assisted by one Deputy and four Assistant Commissioners. This new department is responsible for the

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collection of domestic taxes. The department’s functions are to register, collect and account for domestically generated revenues due in accordance with the relevant laws of Uganda. It is also responsible for initiatives aimed at expanding the tax base.

4.2.7 Information Technology and Corporate ServicesA Commissioner, assisted by two Assistant Commissioners, heads this department. The department’s role is to provide the necessary technical support and facilitation to the entire URA. The department has two major divisions, namely Corporate Services and Information Technology, each headed by an Assistant Commissioner, with several sections and units below them.

The Corporate Services division has three units: Strategic and business planning Project Management & Implementation Unit Plan Inspections, Budget, Monitoring and Evaluation.

The Information Technology Division has two major sections: The System Design and Development section develops in-house software.

Where necessary, it carries out research and recommends off-the-shelf/vendor supply of software to URA and ensures appropriate customization to suit URA processes.

The Systems Operation and Maintenance section is responsible for smooth operation and systems maintenance.

4.2.8 Internal Audit and Tax InvestigationA Commissioner heads the department assisted by two Deputy Commissioners and two Assistant Commissioner. The department is made up of two divisions, namely Internal Audit and Tax Investigation. The Department handles investigations related to tax fraud and transaction audits in respect of revenue and expenditure. The department also provides support to revenue collection and administration by reviewing systems of internal controls and investigating cases of suspected tax evasion.

4.2.9Finance DepartmentA Commissioner, assisted by a Deputy Commissioner and an Assistant commissioner, heads the department. The functions of this department were managed together with that of administration under the Finance and Administration Department until June 2002. The Department collaborates with other departments to prepare and present the annual capital and recurrent expenditure budgets to the Ministry of Finance. It is also responsible for soliciting funding for the Corporate plan.

4.2.10 Human Resources DepartmentA Commissioner, assisted by a Deputy Commissioner and an Assistant Commissioner, heads the department. The Human Resource Department’s function is ‘to initiate, develop, Implement and review systems for the

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management of staff performance in line with the URA Mission, Core Values and the Human Resources Management Manual.’ of URA. The Human Resources manual has explicit provisions for paid maternity leave for female staff of 45 calendar days paid in addition to annual leave. There are also provisions for death benefits of staff or next of kin who are in most cases children. In Uganda, infant mortality rates is high, therefore, children are more vulnerable than their parents. There are long service awards, gratuities and a retirement scheme managed by the National Social Security Fund (NSSF) for elderly staff. A pension scheme is currently being developed.

The functions of the Departments include: Selection and recruitment to ensure the continued availability and

maintenance of qualified and skilled human resources; Management of staff records and an information databank; Organization development reviews aimed at administrative and

management structures, systems, methods and procedures to ensure continuous performance improvements;

Employee performance management to ensure maintenance of quality and productive workforce;

Human resource planning and development review, staff turnover, human resource projections and succession planning;

Provision of social welfare and other employee service benefits, management of staff discipline and grievance settlement procedures;

Training and skills development to enhance the quality of performance of employees.

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5 Gender Analysis of URA policy5.1 IntroductionAt the time of inception, URA took over all duties and properties of the former collecting departments of Income Tax, Inland Revenue and Customs and Excise. The Authority was created as a semi-autonomous body with a Board of Directors appointed by and responsible to the Minister of Finance, Planning and Economic Development.

The URA Statute grants a considerable degree of autonomy to the URA. The URA is mandated to collect revenue for the central government. Its mission is to maximize central government revenue while optimizing resource utilization by ensuring a fair and equitable tax administration with a highly motivated and professional staff. In order to fulfill this mission, the organization developed its corporate plan as a framework from which it derives its business plans.

The Corporate Plan defines the strategic path to be taken by the URA during the five-year period from 2002/03 to 2006/07. It spells out the organization’s corporate objectives and lays down strategies for achieving them. In addition to focusing on enhanced revenue collections, the plan takes into account the basic role of the Authority of maximizing revenue with minimum burden to the taxpayers so as to fund, to the greatest extent possible, the government expenditure budget.

5.2 Rationale for Transfer of the Tax Collection FunctionBefore the formation of URA, four departments in the Ministry of Finance administered taxes. The transfer of the functions to the URA was meant to address problems of poor tax productivity due to low staff morale and commitment, shortage of operating facilities, corruption and staff indiscipline, weak management and staff supervision. There was also a lack of taxpaying culture among the public due to perception that the tax system is unfair.

The creation of the URA moved staff away from the traditional civil service, with improved terms and conditions of service, strict discipline and increased facilitation. This is in terms of better remuneration than the traditional civil service, better working environment and working tools like vehicles and computers.

5.3 Results of the TransferDuring the first year of operation, tax collections more than doubled from Shs 180.5 billion in 1991/92 to Shs 383.8 billion in 1992/93, an increase of 113%. Average annual growth of revenue has been 24% since 1992/93. Table 4 shows the figures over the ten-year period.

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Table 4 Historical revenue figures for is it tax and non tax revenue

YearRevenue Bn.

ShsAnnual Growth

1991/92 180.45  1992/93 383.81 112.7%1993/94 388.11 1.1%1994/95 522.23 34.6%1995/96 639.64 22.5%1996/97 742.62 16.1%1997/98 821.59 10.6%1998/99 969.57 18.0%1999/00 1031.58 6.4%2000/01 1125.40 9.1%2001/02 1264.31 12.3%

Average Annual Growth 24.3%

5.4 Functions of the URAThe functions of the URA are, among others, to: Effect all Central Government taxations laws; Promote equity and fairness in the tax system; Provide a databank for primary data and information for the tax policy

function of the Ministry of Finance; Carry out proactive research to evaluate different fiscal policy options

available and advise government on the preferred course of action; Educate the tax-paying public, researchers and future taxpayers

(students) so that they are fully aware of their rights and obligations under the existing tax regime and are kept up to date regarding any changes to that regime;

Work in conjunction with the government bodies such as the Ministry of Trade and Industry and the Bureau of Standards in monitoring the quality and nature of goods crossing the borders of Uganda; and

Provide Uganda with the necessary representation in regional and international fora where such fora have implications for tax policy and administration.

5.5 Analysis of the URA Corporate Plan 2002/03-2006/07

5.5.1History of Corporate PlanningThe Uganda Revenue Authority Corporate Plan for 2002/03-2006/07 is a successor to the first five-year plan for 1995/06-1999/2000. The first medium term plan had limited success because the need for corporate strategy had not been fully internalized and the necessary staff were therefore not assigned to this function. Planning was also top-down, leading to lack of support by staff.

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Subsequent pressure by the Government to have efficiency improvements in the wake of budget constraints emphasized the need for a corporate strategy.

The present Plan is the result of a bottom-up consultative process and thus has more prospects of success than the first one. The ultimate goals of the plan over the plan period are to raise the revenue to GDP ratio from the present 12% to 17%, and to change the structure of tax by reducing the role of trade taxes relative to direct and indirect turnover taxes from the present ration of 52:20:28 to 45:25:30. These changes are aimed at promoting voluntary compliance among taxpayers. The plan details the corporate goals and outlines the strategies for attaining them.

The long-term vision of URA is to fund the entire Government budget. At present it funds only 50% of the budget.

There are no explicit references to gender concerns of employment in URA, in the Corporate plan, a situation that requires attention. URA senior staff are mostly women, but this has occurred by default rather than by design.

The General Corporate objectives of the URA as envisaged in the Plan are: Revenue maximization and minimizing leakages; Improving the quality of services; Staff development and motivation; Corporate management improvement; and Image building and maintenance of corporate integrity.

Specific Corporate Objectives in the Plan include: Widening the tax base by tapping unregistered tax payers like landlords,

PAYE, informal sector taxpayers that claim to be below VAT threshold; Strengthening the audit and investigation functions; Strengthening the IT strategy by building a local Area Network; Standardization of IT Platforms; Preparation of an Integrated Tax Administration System to allow easy tax

reconciliation and interdepartmental links; Strengthening Human Resource Management to ensure that staff are

remunerated appropriately for services rendered, and given fair hearing in all cases of complaints and grievances;

According staff appropriate counseling services, and providing them with healthy working conditions, skills, tools and facilities to perform their jobs effectively and efficiently;

Corporate image improvement and enforcement of strict discipline and personal commitment.

5.6 URA Achievements for 2001/02During 2001/02 the URA reported the following achievements: An Improvement in domestic VAT collection; Collection of passport fees (non-tax revenue) that exceeded the target by

a substantial margin;23

Successful launch of a Code of Ethics for staff and a project to champion ethics and integrity to inculcate a positive culture amongst staff;

Launch of tax stamps on cigarettes, which yielded more revenue from cigarettes;

Launch of Local Excise Duty – Direct banking in March 2002; and New Customs procedures that took effect in February 2002, which

reduced customs clearance of goods to two days.

5.7 ConstraintsThere was a delay on the part of the Ministry of Finance to release capital funding for the URA and this imposed financial constraints on the organisation.

The lack of legal status of SRPS Special Revenue Protection services for prevention of tax fraud and smuggling, affected releases to that entity which encroached on the URA budget.

There was general under-budgeting for URA by the Ministry of Finance so that several activities [such as?] went far beyond the budgeted amount.

There is inadequate facilitation, especially for the collecting departments, in terms of office equipment and machinery such as transport and computers and in some cases skilled staff. Inadequate salaries have resulted in a high turnover of staff to better-remunerated jobs outside the URA.

Because the URA ministerial policy statement is derived from the Corporate plan, it has the inherent weakness of not explicitly addressing gender concerns.

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6 6. Gender Analysis of URA Budget for 2001/02 and 2002/03

6.1 Preparation of the URA BudgetThe Budget of the URA is derived from the Consolidated fund, duly appropriated by Parliament through the Vote of the MFPED under the budget of the Tax Policy Department. The URA Board approves all the budgetary activities of the Authority based on the annual business plan. The following tables provide a summary of the URA Budget for 2001/02 and 2002/03.

Table 5 Summary of URA Recurrent & Development Budgets (bn Shs)Item Expenditure

2001/02Budget 2002/03

Recurrent expenditure 43.903 44.55Development expenditure

4.200 13. 2

Total 48.103 57.75

Table 6 Details of URA Development Budget (bn Shs)Item Expenditu

re 2001/02

Budget 2002/0

3

Remarks

Renovation of buildings 1.205 Headquarters building

Office equipment & machinery

0.309 0.182 Includes radio equipment

Computerization 11.2 ProjectOffice furniture & fittings –Refurbishment

0.043 0.317 Better furniture & metallic racks

Major works 0.7 Renovate 10 stationsMotor vehicles – motorcycles 1.942 1.50 Buy new vehiclesTotal 4.199 13.2

The above table reveals that the increase in the 2002/03 Capital or Development. (The terms Capital Budget and Development Budget are used interchangeably) Budget was largely a result of the computerization project.

Table 7 Summary of URA Recurrent Expenditure Activities (bn Shs)Item Expenditure

2001/02Budget 2002/03

Staff Costs 29.72 30.79Traveling and Transport 5.02 3.03Repair and Maintenance 0.431 0.44Other 8.701 6.25Directors’ Expenses 0.033 0.494Total 43.905 40.554

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The Appendix provides details of the table.

7 Departmental allocations of the 2002/03 BudgetThe allocation of the Budget for 2001/02 was based on the old structure, for which staff data were not available. This information could not be provided by URA as they had switched to the new computerized system. The analysis therefore focuses on the Budget for 2002/03.

The summary departmental breakdown of the 2002/03 recurrent budget is shown in the table below.

Table 8 URA Recurrent Budget for 2002/03 (Shs)

  Staff costs O/W SalaryTransport/

TravelMaintenanc

eOther

chargesBoard

expenses Total               

CG 2,242,970,329 1,125,461,916 305,389,770 13,680,000 765,741,790 - 3,327,781,889

CIATI 1,963,630,572 979,654,776 127,727,204 7,892,000 100,813,618 - 2,200,063,394LEGA

L 409,473,455 186,491,892 33,288,532 7,140,000 44,830,000 494,731,987

HR 2,002,409,363 836,574,204 46,807,280 5,908,000 318,794,724 - 2,373,919,367

FIN 2,244,487,594 1,084,098,156 128,023,956 16,140,000 326,836,687 - 2,715,488,237

ADMN 2,069,866,824 841,063,584 527,519,604 111,380,000 573,203,161 - 3,281,969,589

ITCS 1,382,787,214 678,024,648 71,797,704 11,760,000 196,739,640 - 1,663,084,558

C&E 7,946,812,222 4,043,136,924 679,469,072 142,500,000 1,362,793,688 -10,131,574,98

2

DDT 1,731,215,358 862,017,612 201,240,566 23,970,000 494,244,012 - 2,450,669,936

C&EX 7,979,963,940 4,035,012,780 590,715,474 84,380,000 1,896,268,592 -10,551,328,00

6

RPS 816,854,169 420,043,644 319,054,838 14,870,000 212,902,164 - 1,363,681,171

 30,790,471,04

015,091,580,13

6 3,031,034,000 439,620,000 6,248,338,076 44,830,00040,554,293,11

6

The departmental breakdown of the 2002/03 development budget is shown in the next table.

Table 9 URA Development Budget for 2002/03 (Shs)  Motor Vehicles Furniture Equipment Computerisation Total         

CG   10,000,000 5,000,000 - 15,000,000CIATI   2,000,000 1,000,000 - 3,000,000

LEGAL   3,000,000 2,000,000 - 5,000,000HR   7,600,000 - - 7,600,000FIN   31,000,000 21,140,000 - 52,140,000

ADMN 1,500,000,000 55,750,000 15,000,000 - 1,570,750,000ITCS   4,250,000 - 11,200,000,000 11,204,250,000C&E   93,105,000 67,300,000 - 160,405,000DDT   22,610,000 11,340,000 - 33,950,000

C&EX   86,405,000 56,500,000 - 142,905,000RPS   2,000,000 3,000,000 - 5,000,000

  1,500,000,000 317,720,000 182,280,000 11,200,000,000 13,200,000,000

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7.1 Activities that Affect Vulnerable GroupsThe budgets are managed by departmental heads according to Departmental Business Plans that are derived from the URA Corporate Plan. There are, however, a few centralized common service activities that are managed by the Administration Department. These include the purchase of vehicles, Information Technology and the Corporate Service department for computerization.

The following allocations directly benefit vulnerable members of staff. ‘Vulnerable’ here is in the context of their relative working environments) Hardship allowance mainly benefits staff who work under difficult

conditions, for example in Customs and field stations. Medical allowance/insurance caters for medical expenses of staff and

their families. Children are major beneficiaries of this expenditure. Death benefits are useful in supporting bereaved families of staff

members. Long service awards are provided to staff members who have offered

long service to the URA, usually 25 years. These awards and social security contributions are beneficial to ageing staff members. There are very few women who benefit, as women only entered this type of work relatively recently.

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8 Qualitative and Quantitative Gender Analysis8.1 Uganda Government Tax Structure in 2001/02The operational tax framework (tax structure) of the Uganda government is based on the following categories of taxes administered by URA: International Traded taxes, Domestic Direct taxes, Domestic Indirect taxes; Fees, Licenses and Charges and Non-tax Revenue previously collected by central Government Ministries and departments. The details of the structure have evolved over some time with trade taxes comprising the largest portion (See Appendix 15 attached.

Taxes from international trade include VAT on imports, import duty, excise duty on imports, import license commission and withholding tax on imports. The Customs & Excise department administers these taxes.

Direct taxes include individual income taxes, Pay As You Earn (PAYE), corporation tax, presumptive taxes, rental income tax, tax on bank interest and other withholding taxes. These were previously administered under LTD and IRD. In the revised URA structure, the assessment and audit function of these taxes is under the department of Domestic Direct Taxes (DDT) while the collection is handled by the department of Expansion and Collection.

Domestic turnover taxes are levied on domestically produced and traded goods and services. They are classified as excise duty on local goods, VAT on services, and VAT on locally manufactured goods. These were previously administered under LTD and IRD. In the new structure their assessment and audit functions will be handled by the department for Domestic Indirect Taxes (DIT), while the collection function will be under the department of Expansion and Collection.

Non Tax Revenues for which the URA provides support and collection services to other government departments include fees and licenses under the Traffic Act, issuing of temporary road licenses, stamp duty and drivers’ permits. As from July 2001, URA was given the responsibility of collecting passport fees. In 2002/03, the URA was mandated to collect additional fees. These include: Migration fees for work permits, special passes, pupils’ passes,

certificates of residence, registration of Non Governmental Organisations (NGOs) and penalties for illegal stay;

Land Transfer fees for documentation, processing lease extensions and registration of titles;

Transport Regulation fees for all vehicles; Company Regulation fees for registration of companies and

businesses, transfer of documents, patents and trade-marks; High Court fees for advocates’ licenses, court brokers, and bailiffs

licenses; Radio and Television fees for private radio and television licenses; and Mining fees for mining royalties, lease and exploration licenses.

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Table 10 Revenue collection by broad category, 2001/02Type of tax Definition % of total RemarksInternational Trade TaxesDirect taxesIndirect taxesFees/Licences & ChargesNon Tax revenue

Import/Export Taxes

Income TaxesConsumption TaxesCharges for Government ServicesCollections by Government, dividends & profits

52.2

21.427.22.4

1.1

Licenses

Including Passports

Total 100%

Table 11 Breakdown of international trade taxes, 2001/02Tax type Definition % of total Remarks

Import dutyExcise duty on bulk petroleum Excise duty on dry CargoVAT on importsWithholding tax on ImportsTemporary Road licenseImport CommissionExport Duty on SkinsTaxes Paid by GovernmentNon oil Imports Excise dutyVAT on ImportsCommission on Imports

On dry cargoOn petrol, diesel, keroseneOn dry goods

9.718.3

1.918.02.00.51.80.01.10.30.10.70.0

AssessmentAssessment

AssessmentAssessmentAssessmentAssessmentAssessmentAssessmentPaid to BoU

Total 54.4%Assessment means Examined and determined by URA in accordance with the tax laws.

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Table 12 Breakdown of domestic direct taxes, 2001/02Tax type Definition % of

total RemarksPAYECorporate TaxPresumptive TaxWithholding Tax

Rental Income TaxTax Bank InterestOther

Tax on employee incomeTax on Corporate ProfitsTax on small tax payers < 5mSupplies Tax withheld by Government 20% of gross rental income15% of interest incomeTax on Treasury Bills

11.35.70.22.9

0.50.50.0

Withheld employerAssessmentEstimateWithheld

AssessmentWithheldWithheld

Total 21.1%

Table 13 Breakdown of domestic indirect taxes, 2001/02Tax type Definition % of

total Remarks

Excise duty:CigarettesBeerSpirits/WaragiSoft DrinksPhone Talk time

Value Added Tax (VAT):CigarettesBeerSpirit/WaragiSoft DrinksOther GoodsServicesCasino Tax

(Tax Mainly for Revenue)

(Tax Purely for Revenue)

9.62.45.30.20.90.8

17.60.41.70.10.66.18.70.0

Assessed

Assessed

Total 27.2%

The main reason for the tax is to raise revenue other taxes are levied for protection of infant industries and redirecting economic activities of consumption and production.

Table 14 Breakdown of user fees, licenses and charges, 2001/02Revenue type Definition % of total RemarksFees & Licenses (Traffic Act)Drivers PermitsStamp duty & Embossing Fees

Licensing Fees 1.90.20.2

Assessed

Total 2.3%

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Table 15 Breakdown of non-tax revenuesRevenue type Definition % of

totalRemarks

Passport feesMigration FeesLand Transfer feesTransport Regulation feesCompany Registration feesHigh court feesRadio/ Television feesMining Royalties

Regulatory Fees

0.17 Only Passport fees collected

The tables above are an illustration of relative contributions of each category of revenue required in the TOR, they are not segregated according to the taxpayers – a recommendation has been made about this.

8.2 Tax revenue performance for 2001/02During the period July 2001 to July 2002, URA was expected to collect Shs 1,259.299 billion in taxes, but collected only Shs 1,212.471billion, giving a performance of 96.3%. Much of the shortfall was attributed to the failure of the assumptions upon which targets were based to materialize. One example is the expected appreciation of Uganda shillings. In fact, the exchange rate remained at 1740 Shs to one USD, compared to the original assumption of 1890 to one USD. This lack of improvement affected import taxes. In addition, the policy change of exempting raw materials import duty contributed to the shortfall in revenue collection.

On the domestic taxes front, sales subject to local excise were much lower than anticipated and this negatively affected the collections. There was a positive performance in respect of corporate taxes, withholding tax, interest on bank income, stamp duty, VAT on services, fees and licenses resulting in a surplus. The table which follows compares the budget estimates with the outturn for 2001/02 and 2002/03.

Table 16 Comparison of budget revenue estimates and outturn, (Shs 000)

 2001/02 Estimates 

2001/02Outturn

2002/03Estimates 

2002/03Outturn

Performance

2001/02

Performance

2002/03Net   URA   collections   (excl.   Govt   taxes   & Refunds)

1,259,299,9991,212,471,82

41,392,146,00

01,402,460,00

0 96.3% 100.7%

Gross Revenues1,315,299,99

91,264,306,72

01,456,146,00

01,451,850,00

0 96.1% 99.7%Direct Domestic Taxes, Fees & Licences 249,581,616 288,109,376 338,070,000 358,620,000 115.4% 106.1%Indirect Domestic Taxes 345,718,383 329,889,243 376,130,000 357,650,000 95.4% 95.1%Taxes on international Trade 700,000,000 633,256,302 721,946,000 722,450,000 90.5% 100.1%

Government Taxes 20,000,000 13,051,799 20,000,000 6,889,420 65.3% 34.5%This data is corrected to one decimal point.

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8.3 Impact of Taxation Policy on Women and Men

8.3.1Difficulties in tax collection in UgandaIn Uganda like in all other countries taxation is so far the only practical means of raising the revenue to finance government expenditure on public goods and services. Setting up an efficient and fair tax system is, however, far from simple.

The majority of workers in Uganda are employed in agriculture or in small, informal enterprises with irregular and fluctuating earnings. Many are paid in cash, ‘off the books.’ The base for an income tax is therefore hard to calculate. Nor do people in Uganda typically spend their income in large stores that keep accurate records of sales and inventories. As a result income taxes and consumer taxes have a minor role in total taxes paid by the majority of poor women and men. The major VAT services mainly consumed by the well to do members of society such as hotel accommodation, printing, cinema etc.

Second, it is difficult to create an efficient tax administration without a well-educated and well-trained tax staff. The poor wages paid to URA officials and the lack of computerization of the operation, combined with inefficient telephone and mail services contribute to the difficulties, as does the limited ability of taxpayers have limited ability to prepare and keep accounts. The enthusiasm to support URA has deteriorated over time below levels when it started.

Third, the informal structure of the economy has financial limitations. The Uganda Bureau of Statistics has some difficulty in generating reliable statistics for the informal sector. This makes assessment of the potential impact of major changes to the tax system difficult. As a result, marginal changes are preferred to major structural tax changes, perpetuating the inefficient tax structure.

Fourth, income is unevenly distributed in Uganda. The economic and political power of rich taxpayers often allows them to prevent fiscal reforms that would increase their tax burden. This makes personal income and property difficult to tax.

In conclusion, in Uganda, tax policy is the art of the possible rather than the pursuit of the optimal. This has resulted in law-abiding citizens being taxed more to subsidize the others.

8.4 Composition of Tax RevenueThere are many conflicting theories about the optimum composition of tax revenue. These involve the taxation of income relative to that of consumption, the taxation of imports versus the taxation of domestic consumption and production. Efficiency (whether the tax enhances or diminishes the overall

32

welfare of those who are taxed) and equity (whether the tax is fair to everybody) are central to most analyses.

The convention that taxing income provides higher welfare (efficiency) than taxing consumption is not well founded because of redistributive effect viz-a-vis revenue productivity tradeoff. Motivation is an accepted convention, but resource constraints are a hinderance. This makes theoretical considerations of income and consumption taxes uncertain. The tax system in Uganda emphasizes revenue rather than other aspects of development. The same applies to equity considerations. Therefore the tax structure is guided by where revenue can be obtained without much attention to equity and efficiency considerations.

With regard to taxes on imports, lowering these taxes will lead to more competition from foreign enterprises. While reducing protection of domestic industries from foreign competition is an inevitable consequence, or even the objective, of a trade liberalization programme, reduced budgetary revenue would be an unwelcome by-product of the programme. Feasible compensatory revenue measures almost always involve increasing domestic consumption taxes, which have very limited scope. At this point revenue from trade taxes contribute more than 50% of total revenue.

At any given point of time, the important tax policy issue for Uganda is not so much to determine the optimal tax mix as to spell out clearly the objectives to be achieved by any contemplated tax change. There is need to carry out an impact analysis to assess the economic and other consequences of such a tax change, and to implement compensatory measures if the poor are made worse off by the shift.

8.5 Selecting the Right Tax SystemIn Uganda market forces have a big resource allocation role. Uganda is a mixed economy, however, the liberalized regime gives the market mechanism a substantial role in resource allocation. The tax system is therefore meant to be as neutral as possible so as to minimize interference in the allocation process. The system should also have simple and transparent administrative procedures so that it is clear how the system is to work.

Any discussion of personal income tax in Uganda starts with the observation that this tax yields very little revenue, and the number of individuals subject to this tax is small. Applying many rate brackets attains nominal progressivity in this tax. The government is therefore reluctant to adopt reforms that will reduce the number of these brackets. As discussed elsewhere in the report, this type of tax has little bearing for poor women and men except to the extent that it can generate revenue, which can be spent on expenditures, which benefit them.

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Tax policy issues relating to corporate income tax are numerous and complex. Particularly relevant for Uganda are the issues of multiple rates based on sectoral differentiation and the incoherent design of the depreciation system.

Allowable depreciation of physical assets for tax purposes is an important structural element in determining the cost of capital and the profitability of investment. Calculations are difficult due to multiple depreciation rates and types. Rectifying these shortcomings should receive a high priority in tax policy deliberations. This tax is also of no direct relevance to poor women and men although there could be indirect effects in terms of which sectors generate jobs, and whether they generate more jobs for women or men.

While VAT has been adopted in most developing countries including Uganda, it suffers from being incomplete. There is a substantial degree of cascading, which increases the tax burden for the final user and reduces the benefits from introducing VAT in the first place. Rectifying such limitations in VAT design and administration should be given priority in Uganda. The threshold for VAT registration of Shs 50 million annual turnover is too high and causes unnecessary bureaucratic delays for producers and taxpayers. Those not registered for VAT pay input taxes but are not legally allowed to charge output tax and are exploited. The poor women and men who are below the registration threshold cannot claim any VAT refunds from inputs to their production. This causes exploitation alluded to above.

In Uganda excise duty is levied mainly for revenue reasons. Other reasons could such as infant industry protection, redirecting consumption; production and investment do not feature prominently. Excise duty is highly selective, narrowly targeting a few goods mainly on the grounds that their consumption entails negative externalities on society. The goods typically deemed to be excisable are, for example, tobacco, alcohol, petroleum products, and motor vehicles, used goods, and polythene bags.

Even if taxes on these goods were waived, the move would be of no significant benefit to the poor people as they consume less Beer, Wines, Spirits, Soft drinks e.g. soda, Juices, Cigarettes, Fuel, Airtime/Service fee on cellular phones, which are excisable.

Reducing import tariffs as part of an overall programme of trade liberalization is a major policy challenge currently facing Uganda. The tariff reduction should not lead to unintended changes in the relative rates of effective protection across sectors. The role of import taxes in Uganda cannot be overstated. The proportion of import taxes is very high that special attention is paid to it.

8.6 Tax Policy Challenges Facing Uganda Uganda needs a higher tax level if it is going to pursue a government role closer to that of industrial countries, which, on average, enjoy thrice the tax revenue relative to GDP. The tax to GDP ratio 12% yet the required ratio is

34

24% in order to fully finance domestic expenditure requirements. We need to reduce reliance on foreign trade taxes, without creating economic disincentives. We need to raise more revenue from the difficult personal income tax. To meet these challenges, policymakers have to get their policy priorities right and have the political will to implement the necessary reforms. Tax administrations must be strengthened to implement the needed policy changes.

As trade barriers come down and capital becomes more mobile, the formulation of sound tax policy poses significant challenges for Uganda. The need to replace foreign trade taxes with domestic taxes will be accompanied by growing concerns about profit diversion by foreign investors, which weak provisions in the tax laws against tax abuse as well as inadequate technical training of tax auditors in Uganda are currently unable to deter. A concerted effort to eliminate these deficiencies is therefore recommended.

Tax competition is another policy challenge in a world of liberalized capital movement. The effectiveness of tax incentives in the absence of other necessary fundamentals, economic efficiencies in resource allocation, is highly questionable. A tax system that is riddled with such incentives inevitably provides fertile grounds for rent-seeking activities. Uganda is therefore well advised to refrain from reliance on poorly targeted tax incentives as the main vehicle for investment promotion.

Finally, personal income taxes currently contribute very little to total tax revenue in Uganda. Apart from structural, policy, and administrative considerations, the ease with which income received by individuals can be invested abroad significantly contributes to this situation.

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8.7 Trends in tax collections over the last three years

Table 17 Trends in tax collections since 1999/2000 (‘000)

 1999/2000Outturn

2000/01Outturn

2001/02Outturn

2002/03Outturn

Net URA collections (excluding Govt taxes & refunds) 979,112,335 1,075,155,394 1,212,471,824 1,402,460,000Gross Revenues 1,031,581,311 1,125,399,054 1,264,306,720 1,451,850,000Direct Domestic Taxes, Fees & Licences 180,273,337 222,873,180 288,109,376 358,620,000Indirect Domestic Taxes 272,271,648 276,214,043 329,889,243 357,650,000Taxes on international Trade 556,567,350 611,068,269 633,256,302 722,450,000Government Taxes 22,468,976 15,243,660 13,051,799 6,889,420

These are collections where Gross revenues include government taxes and refunds that do not contribute to the overall resources for expenditure.

Table 18 Growth in revenue collection 1999/2000 to date

 2000/01Outturn

2001/02Outturn

2002/03Outturn

Net URA collections (excluding Govt taxes & refunds) 9.8% 12.8% 15.7%Gross Revenues 9.1% 12.3% 14.8%Direct Domestic Taxes, Fees & Licences 23.6% 29.3% 24.5%Indirect Domestic Taxes 1.5% 19.4% 8.4%Taxes on international Trade 9.8% 3.6% 14.1%Government Taxes -32.2% -14.4% -47.2%

8.8 How much would be paid by men or womenFrom the data and the interviews conducted, it is not easy to estimate the amounts of taxes paid by women and men. A Tax Identification Number (TIN) is used to identify taxpayers but does not distinguish between a female and male taxpayer. It would require additional software to dig deep into the database to identify which TIN belongs to a female or male taxpayer. That process would only be useful for individual income taxes such as PAYE. Appendix 8 contains the calculations for PAYE paid by women and men staff of URA. The table suggests that taxation based on PAYE is gender neutral, because 32% of the employees are female and they pay 32% of the PAYE taxes of the URA. However, the situation at URA is unlikely to be representative of the situation for the employed population as a whole. This therefore does not give the complete picture requiring a separate inquiry.

Gender-sensitive taxation is not about having different tax regimes for men and women. Instead, it is about assessing the impact of all taxes on women, men, different groups of women and men, and vulnerable members of the community. Estimation of how much tax is paid by women is a purely analytical exercise to assist in assessing this impact. Impact can also be

36

assessed by looking at measures for direct tax relief in respect of goods and services beneficial to vulnerable groups, or at measures, which have indirect impact by influencing resource allocation to different sectors.

8.9 Categories of poor women and men In order to assess the impact of different taxes on poor women and men, it is necessary to determine:The categories of women and men who are regarded as poor in the Ugandan context; The categories of taxes that are levied in Uganda; How taxes impact on social and economic activities; Economic and social activities of the poor women and men in terms of

income, production, consumption and leisure.

Poverty is a relative term and is applied differently in different societies and communities. For the purpose of this analysis we shall restrict the term poor to apply to individuals and groups of people in the following categories. peasant farmers; rural landless; urban unemployed; school dropouts; low paid formal sector workers; and informal sector workers.

We could not give more of an indication of the gender make-up of the groups discussed below because statistical data available does not give such a breakdown. An appropriate recommendation has been made

8.9.1Peasant farmersThese comprise the majority of women who derive their livelihood from subsistence production. In most cases they produce for home consumption with very little if any for sale. They are however, confronted with the need for money for school fees, and for manufactured essential livelihood goods such as clothing, shelter, and food. Often they have very little to set aside for leisure, which is an important ingredient of the quality of life. They also have very little access to modern inputs in their production due to the high prices of such inputs.

8.9.2Rural landless peopleThese people survive from community handouts and through providing labour to those who have land. Earnings derived from these sources are mainly used for survival with very little left to purchase essential manufactured goods, food, clothing, medicine and shelter.

8.9.3The urban unemployedThese are people who are in urban areas searching for employment but have not got jobs. There are also people who carry out petty activities, some of

37

which are regarded as illegal such as prostitution and pick pocketing. Some do odd jobs in order to earn a living.

8.9.4School dropoutsThe majority of these people are children who drop out of school for various reasons. Girls dominate in this category because when there is a shortage of money to pay school fees in a family, girl children are usually sacrificed in order to keep boys in school. Other reasons for girls to drop out include early pregnancy where school policies do not allow pregnant students to continue. Many of the school dropouts end up as street children. Sometimes loss of parents through wars and epidemics such as AIDS result in school dropouts. These people live mainly on handouts and petty trade/activities. Traditional culture has been generally negative about girl child education in preference for boys even where parents are alive.

8.9.5Low paid formal sector workersThere are two forms of low payment to formal sector workers that result in their being poor, namely pecuniary/monetary and non-pecuniary.

The pecuniary form of under/low payment to workers is in the form of wages which are not sufficient to cater for the basic needs of their households. Uganda has minimum wage laws that require employers to pay an amount that is sufficient to provide for the basic needs of their workers e.g. clothing, shelter, food, education and health. Employees in organizations/firms that do not comply with the minimum wage legislation may be subjected to this form of underpayment.

A second type of pecuniary underpayment occurs where the minimum wage is in place but does not reflect the high cost of living brought about by inflation. This affects fixed income earners because high inflationary rates erode the real value of their wages and salaries. In the formal sector this is usually common in organizations that either lack trade unions or those with weak bargaining powers. It is also common in the public service, where the minimum wage takes long to be revised due to bureaucratic tendencies.

Another way in which formal sector workers can be underpaid is where their basic needs like housing, transport, medical needs are neither monetised nor provided as fringe benefits by their employers. When benefits are provided by an employer in kind then they are not monetised. In most cases employees are given money to cater for certain facilities, e.g. housing allowance rather than housing them.

On the non-pecuniary side, these are cases where workers work longer hours than their wage seems to merit, even if these earnings may appear to be sufficient in absolute terms. Examples include the banking sector and some employees of Asian enterprises. This involves underpayment for labour services provided.

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The second form of non-pecuniary underpayment involves those whose earnings are unpredictable or seasonal. These workers may earn enough for only a small part of the year. One example is plantation agricultural workers.

A third form of non-pecuniary low payment is where workers are not given social entitlements like annual leave, sick and maternity leave, protective gear, etc. The final one is where workers may receive substantial incomes but are not provided with benefits such as pensions.

8.9.6 Informal sector workersLow payment in the informal sector is primarily due to the lack of legal status that would compel the employer to provide a minimum wage. Secondly the policy of liberalization gives informal sector employers the liberty to determine their wage rate in a way that maximizes profit. There was a minimum wage applicable to both the formal and informal sector before liberalization.

By definition, in the informal sector the legal provisions for the establishment of workers unions to advocate for their rights in terms of higher pay and other benefits, are not enforceable. In Uganda laws do not explicitly exclude the informal sector, however, it is difficult to police and enforce laws in the informal sector. Therefore workers are generally exploited under this arrangement. Employees in the informal sector have a legal framework for bargaining, e.g. trade unions but are not very active due to liberalization and weak labour laws.

Jobs are also less secure in the informal sector. The firms are ‘footloose’ in nature, they have minimal capital and can switch from one trade to another or one place to another. The workers are subjected to poor working conditions ‘Jua Kali’ and do not have protective gear.

Because informal sector firms are not registered in any way, it is difficult to subject their employees to income taxes. They also find it difficult to access fiscal benefits such as tax holidays, refunds, rebates, subsidies etc. They are however, subject to indirect taxes applicable to consumption and production, with no opportunity for refund. Informal sectors include child labourers, house/bar maids, and restaurant operators in ‘Sauri yako’ who are mainly women. Market vendors, hawkers, taxi touts and shamba boys also fall in this category.

8.10How Taxes Impact on Social and Economic ActivitiesTaxes impact on social and economic activities of people through a direct reduction in their income or indirectly through an increase in the prices of consumer and producer goods.

8.10.1 Impact of Direct Domestic Taxes on the Poor Poor people – poor women, poor men, poor children and other vulnerable groups – are not subject to income tax as they generally fall below the threshold for income tax which is Shs 1,560,000 per annum. Some argue that

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this figure does not provide the basket of basic needs, but that debate is outside the scope the terms of reference of this study.

There are also thresholds for PAYE, illustrated in appendix 8, which are applicable to formal workers. These thresholds exclude all informal sector workers, the majority of whom are poor. Because they are informal and difficult to police even if they earn above the threshold. Corporate and interest tax are outside the scope of tax payable by the poor. The poor who rent, rather than own, their dwellings pay rental income tax. Property tax would be a preferred mode, but it has problems already alluded to in this report. Property is owned by rich businessmen and politicians who have the capacity to prevent any actions that increase their fiscal burdens, they are either decision makers or connected to them. User fees on public services impact on poor members of the society. The distinction between a tax and user fee is that you donnot get a direct benefit back from a tax , but for user fees you get a service in return eg medical.

8.10.2 Impact of Indirect Taxes on the PoorIndirect taxes impact on people via prices. These result from the ability of the taxed entity to pass the burden of the tax onto the final buyer of the good or service. The ‘incidence’ of a tax refers to where the burden of that tax ultimately rests. The ability to shift the burden depends on the elasticity of demand for the good or service. A good or service, which is an extreme necessity, with no close alternative, has a very low elasticity. Where a commodity has this character, most of the tax is passed to the final consumer. Most of the goods and services consumed by poor women and men fall in the category of necessities with low elasticity of demand. Basic food and medicines is exempted from VAT.

Indirect taxes can also affect the productivity of poor women and men where they are imposed on the inputs used by them. Inputs used include: Small-scale food preparation enterprises and cottage industries: Inputs

include fuel (paraffin), water for production including irrigation and valley dams, plates, protective gear for riders, insurance for road users, etc Ultimately transport is for food, inputs and passengers who foot the bill;

Peasant agriculture: Inputs include hoes, pangas, improved seeds, pesticides, herbicides, fertilizers, water, and animal (veterinary) medicines.

Small scale fishing: Inputs include, fishing gear (nets, hooks, floater), water safety equipment e.g. life jackets.

Petty trade/market vending: Inputs include weighing scales, juice makers, popcorn makers, groundnut pastes makers, salt, sugar etc.

Indirect taxes can also affect poor people when they are imposed on inputs of goods and services consumed by them. These include: Care centres for the elderly and children: Inputs include reproductive and

surgical equipment, clothing, bedding, food, human medicines, children toys.

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Public transport: Inputs include fuel, road equipment, and rail fuel. This industry facilitates movement of poor people to access markets, health and education and other public facilities.

Basic shelter: Inputs include nails, corrugated iron roofing sheets, paint locks and hinges. Shelter is an essential ingredient of productivity and well-being.

Basic healthcare: Inputs include surgical, maternity and clinic equipment, syringes, dental health equipment, water, and surgical gloves and human medicines of all categories. Some antibiotics under chapter 29 of the Finance Act are subject to tax. medicines are not subject to tax.

Inputs to these small-scale industries and activities need to incur lower indirect taxes as they directly improve productivity of the poor women and men. The ones related to Small Scale Industries should attract lower indirect tax rates because of their impact on the poor women and men.

Indirect taxes can also affect the consumption of poor women and men, girls and boys and other vulnerable groups In particular, poor women and men are affected by indirect taxes on basic necessities, i.e. food, clothing, and educational materials.

Food is essential for all people. Poor people rely on food such as grain cereals (maize, sorghum etc.), milled cereals (posho, tubers and roots), legumes (beans peas, etc.), cooking oil, meat, fish, etc. Basically all food items fall in this category. Most of these commodities are not subjected to local VAT and excise duty. The trade taxes on these commodities are mainly aimed at promoting their local production and consumption.

Clothing is also an essential good for all clothing. The types of clothing used by the poor include used and worn clothing, and worn shoes. These items have an excise duty imposed on them. The aim is to protect local industries, but the duty hurts poor women and men.

Education is an essential service that is necessary for getting people out of poverty, ignorance and disease. Education itself and educational materials should be exempted from taxes.

8.11Gender analysis of taxation of goods mainly used by women in Finance Act 2002

The wide-ranging work that Ugandan women do in the care economy without explicit financial consideration is a form of tax. Some scholars call it a ‘reproductive tax’. There is therefore a need to provide direct fiscal benefits to women members of society in recognition of this contribution in order to enhance their productivity. There are three main categories of goods which are mainly used by women through which these benefits could be provided: (a) items of reproductive health and hygiene; (b) items that support the care economy such as childcare; and (c) items that have an impact on time use and leisure.

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Items with an impact on reproductive health and hygiene include toilet soap and soap for washing clothes, sanitary towels and pads, hair shampoos and mosquito nets; maternity equipment and maternity clothes.

Items with an impact on time use are goods that help women save time for more productive work. These include energy/power for cooking, paraffin, household dishwashers, hoovers. There is a number of poor people even in urban areas where there is electricity. Tax relief on clothes washers, and cookers. Tax relief on these items can go a long way in improving productivity of women.

Items with an impact on the care economy include goods relating to childcare, care of the sick and elderly and domestic work. These include items for child day care facilities, children’s foods such as Baby foods, infant milk etc. mosquito nets, toys, children’s clothing and child toiletries, and equipment for care of the elderly.

$$Items with an impact on leisure include commodities, which are used for the leisure of mainly women. Beauty and make up products are found in chapter 33 of the Finance Act. These commodities are heavily taxed, including an excise duty of 10% besides the full range of the other taxes ie. non-COMESA Import duty of 15%, COMESA duty of 6%, VAT of 17%. These goods are taxed heavily because it is believed that these are consumed by well-to-do women. But leisure is an important ingredient in productivity. And sex workers use these items as inputs to their trade. Saloon equipment and hair oils also fall in this category. There is no evidence that this form of tax relief is very productive, as it will result in revenue shortfalls for vital expenditure.

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9 Gender Analysis of Tax Reform Measures9.1 Tax Policy Reforms for 2001/02As explained above, MFPED prepares tax proposals and presents them to Parliament. It makes these proposals in the form of a Finance Bill, with a request for it to be passed and so become a Finance Act. The Finance Bill 2001 was presented to Parliament in June 2001. There eight primary objectives of the Bill were: Protection of certain manufacturers; Raising additional revenue to finance the expenditure requirements; Providing a predictable taxation regime conducive to long-term

investment planning; Harmonization of tariffs both for goods originating within and outside the

COMESA region as the Country looks at regional integration as well as building a competitive open economy;

Providing discretionary tax exemption of certain raw materials which are strategic to the export sector;

Promotion of the domestic capital markets by allowing deduction of expenses on initial public offerings;

Broadening the income tax net by plugging loopholes in the Income Tax Act of 1997;

Strengthening administrative measures aimed at improving revenue collection and promoting voluntary compliance.

9.1.1Cigarettes and petroleumA notable change in the Finance Act 2002. Let me clarify the The Finance Bill 2001 is the draft of the Finance Act 2002 in which there was the introduction of tax stamps on cigarettes and marking (coding) of petroleum by SGS. Societe’ Generalle De Survellance (SGS) is an international import preshipment inspection firm. These measures were introduced to curb smuggling of cigarettes and bulk petroleum. The tax stamp measure was applicable for both locally produced and imported cigarettes and was intended both to protect local tobacco production and to raise revenue.

9.1.2Zero Rated and Exempted ItemsIn the Finance Bill of 2001, various items had taxes remitted to zero or were exempted completely from tax. These include vanilla, roasted malt, hop cones, some oils, malt extracts and food preparations of flour, bentonite, gypsum, anhydrite plasters, cement clinkers, kerosene type jet fuel, various raw materials, and various chemical materials used mainly for food preservation and colour as well as for medical purposes. Others in this category of the zero-rated and exempted goods included other natural rubber, balata, solution dispersion, newsprints in rolls of sheet, paper excluding mechanical, unbleached paper, high tenacity yarn polyesters, synthetic filament tow of polyester, and others, artificial filament tows, synthetic staple fibres, of arcrylic or modacrylic, textile fabrics impregnated with polyvinyl chloride and looped pile fabrics of man-made fibres, knitted or crocheted, coils of iron of various thickness, various metallic products or zinc coated,

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bicycles, barbers’ and hairdressers' chairs, and pen nibs and nib points. In addition, items for manufacture and packaging of pharmaceutical products and disposable syringes, and raw materials for specified products had their taxes removed.

9.1.3Reduction in Import DutyThe 2001 Finance Bill proposed reduction in import duty is aimed at reducing import duty on various categories listed in the Appendix 13. from 15% to 7%. The reduction from 15% to 7% for a large number of items was intended to support production of the outputs. Items on which import duty was remitted to 7% and excise duty to nil items for use in the manufacture of the following products: mattresses; biscuits, sweets, soft drinks and beer; suitcases and bags; soap garments; cosmetics; perfumes; carbon-dioxide; juices; manufacturers/assemblers of electronics; distilled spirit; drinking straws; bicycles, parts & components, exercisers, trolleys & push carts; furniture, and pharmaceutical products & disposable syringes. This support was not directly targeting poor people but might benefit by default as these were considered as inputs for industrialization with employment prospects for the poor.

9.1.4Value Added Tax (VAT)The Value Added Tax remained at 17% for all items except for those that are zero-rated or exempted from taxation.

9.1.5Excise DutyTable 19 reveals that the Bill proposed an increase in excise duty on cigarettes from 122% to 130% and on beer from 60% to 70%. Duty on soft drinks remained at 20%, and on spirits at 45%. The impact of these changes is discussed in the revenue analysis above. These are marginal changes with no significant impact.

Table 19 Excise duty rates on major local goodsCategory Act of

2001Act of 2002

Effective Change

Beers 60% 70% 10%Cigarettes

122% 130% 8%

Soft Drinks

20% 20% 0%

Spirits 45% 45% 0%

The 2001 Finance Bill. One is a draft the other is an approved version with only minor changes proposed a removal of excise duty from 20 categories of excisable items. With the exemption of only one category (namely, Ethyl alcohol and other spirits, denatured, of any strength) for which excise duty was remitted from 65% to zero, all the other items for which duty has been remitted completely had excise tariffs remitted from a range of 10 - 15% in the 2001 Finance Bill. These are summarized in Appendix 13;

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An exception in the removal of excise duty is worn clothing (second-hand clothes) and other worn articles as well as rags which had an anti-dumping excise duty reduced from 15% to 10%. These changes were aimed largely at easing the protectionist policy. The excise duty payable in respect of paraffin for manufacturers of carbon dioxide is to be remitted from a specific duty rate of UShs 200 per litre to UShs 45.15 per litre.

9.1.6Non-tax revenueThere were no major changes on rates applicable to non-tax revenue. Fees and licences governed by the Traffic Act attracted only minor increases. Stamp duties and varied from one category to the other some on land titles to registration of companies, and contracts. Most rates were set at 1% and 0.5% of the value of the property item. Some were charged at 100/- per document/transaction. Others like the memorandum and articles of association of a company, were charged on a fixed rate of 10,000/-.

Proposed Changes in the Application of the Income Tax Act, 1997The 2001/02 budget proposed a number of changes in the application of the Income Tax law aimed primarily at eliminating the loopholes in the law, but also aimed at applying the law uniformly to all income earners within Uganda and for both residents and non-residents. The changes in the Income Tax Act, 1997 included: Deduction of duty in expenses on initial public offerings; The introduction of a with-holding tax of 4% on resident professionals; Removal of tax exempt status of interest earned on Treasury Bills and

Bank of Uganda Bills; A provision allowing an employer to deduct income tax liabilities

expenses incurred in respect of any housing allowance or housing provided to employees;

Inclusion of rent in the taxable bracket for any non-resident person who derives rent from sources in Uganda; and

Inclusion of non-resident road transport operators in the income tax net.

The first change aimed to promote the development of domestic capital markets by encouraging companies to list on the stock exchange. When a company lists, there must be full information disclosure of the companies' liabilities and assets. The change was intended to protect the concerned companies from additional taxation arising from disclosure process.

The second change aimed to tax the income of professionals. In the past this has presented difficulties as many professionals have not filed income tax returns on which tax assessment could be made. A 4% withholding tax enables the collection of the tax at source.

The removal of the tax-exempt status of Treasury Bills and Bank of Uganda Bills aims to bring about equity and uniformity in the application of the Income Tax Law. The previous tax exemption status was necessary to develop a secondary market in Government securities.

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The fourth provision was aimed at removing an anomaly in the Income Tax Act. Because housing benefits are part of taxable income for the employee, unless they are tax deductible to the employer, they will be subject to double taxation. Making housing benefits deductible for the employer simply treats these benefits in the same way as other forms of employee’s remuneration, which are deductible for the employer when computing the tax on profits.

The final two provisions are intended to capture the incomes of non-residents who have invested in Uganda in the housing and transport sectors. This levels the ground for a competitive environment for both resident and non-resident investors in these sectors. Most of the non-resident companies are owned by men hence reducing the gender gap.

9.2 Tax Administration ChallengesThe application of some tariffs will be subject to discretionary decisions. For example, there will be discretionary decisions on whether paraffin is for the manufacture of carbon dioxide (in which case it would attract a specific duty rate of only Shs 45.15 per litre), or whether it is for other purposes (where it would attract a specific rate of Shs 200 per litre). Other discretionary decisions will have to be made as regards those items. The problem with discretionary decisions is that they create loopholes in tax administration, often leading to loss of revenue and unfair treatment of taxpayers.

Another administrative challenge is that the current generally Finance Bills and Acts are very complex documents. This can create problems for understanding by both taxpayers and tax collectors. This, in turn, leads to confusion among taxpayers about their tax obligations. Monitoring the correctness of declarations and assessments is also cumbersome

9.3 Tax Policy Changes for 2002/03The Finance Bill 2002 was presented to Parliament in June 2002. It had the following objectives: To increase revenue collections for funding expenditures of the

Government; To improve voluntary compliance and reduce incidences of tax evasion,

avoidance, fraud and smuggling; To reduce anti-export bias; To encourage value addition on exports and production of manufactured

exports; To provide effective protection to infant domestic industries; To broaden the tax base by bringing some informal sector activities into

the tax net; and General harmonization of taxes as a move towards regional integration.

9.3.1Major tax proposalsThere was a Shs 30 increase in the specific excise duty on petrol (PMS) Petrol from Shs 580 to Shs 610. Oil companies, who operate in a cartel, prevented

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this measure from meeting the intended objective as they subsequently increased the prices of all their products. The prices were increased by a further margin of Shs 20 across the board for PMS a total price rise of Shs 50 and Shs 20 respectively for paraffin (BIK) and diesel (AGO) respectively. To distinguish between increase in tax and attendant increase in the price more than the tax change. Since oil companies give generous gifts to consumers, there is scope for price reductions. However, the cartel agreed not to effect these. The gifts are not provided transparently as would be the case with price reduction. This is clear abuse of cartel powers. The Government ought to take a stand to prevent cartels. Tax on fuel affects the poor via high prices of public transport.

There was a 15% levy on FOB/FOR exports of raw hides and skins of bovine animals. This provides motivation to add value to the product before export.

A 10% excise duty on all vehicles except commercial vehicles was introduced purely as a means to increase revenue. People who want these vehicles will continue to import them but in reduced quantities, yet growth in consumption of petroleum is projected. This is a contradictory implication of the two measures.

A 5% increase in excise duty on used clothing and 10% excise duty on used shoes was introduced. These are reasonable revenue measures as they promote local production of the products and also bring the informal sector into the tax base.

An increase in fees and charges applicable to motor vehicles under the Traffic and Road Safety Act was introduced. In particular, there was an increase in deregistration for export fees for agricultural tractors from Shs 200,000 to Shs400,000. This reduced the incentive for abuse through re-export of low duty vehicles like commercial vehicles, minibuses, and engineering plants and related vehicles.

A proposal to introduce a 20% excise duty on polythene bags and plastic containers was raised by Parliament to 50% for environmental reasons. It was expected to promote use of decomposable substitutes.

Awarding of Government contracts to VAT-registered firms included in the Budget Speech for 2002) is a good policy to promote voluntary compliance in VAT registration. But this policy is in conflict with the minimum threshold of Shs 50m turnover required for registration as it prevents small investors and suppliers from obtaining Government contracts. This needs to be revisited.

The Bill introduced a 10% reduction of the excise duty on beer from 70% to 60%. Implying a policy reversal. This can be productive in terms of revenue enhancement only if the beer industry reduces their prices to result in increased consumption and production.

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Removal of VAT on computers and accessories promotes computerization and e-commerce. It will, however, introduce an administrative burden to ensure that other goods similar to computers are not classified as computers or accessories for purposes of benefiting from this facility.

The increase in excise duty on sugar from 10% to 20% increases the administrative burden and incentive for smuggling sugar. Smuggling mainly takes the form of re-export and transit damping into the local market. Sugar is high on the consumption menu of vulnerable groups of women, children and the elderly. Manufacturing under bond should be strengthened coupled with careful calculation by input-output ratios for monitoring conversion of highly risky due to mis-declaration about how much raw materials were turned to finished goods.

Extension of the warehousing period for motor vehicles from 12 months to 20 months provides scope for vehicles to be bought and warehoused mainly for vandalizing to obtain replacement parts. The longer the warehousing period, the more revenue is tied up, the more resources are needed for control, and the larger the chances for abuse.

Certification of vehicles by a ‘competent authority’ in the country of origin is definitely open to abuse. It is not clear what the sanctions for non-compliance will be. Most countries that produce vehicles, which they do not need, will do anything to ensure that the export process takes off. Appropriate sanctions need to be developed and enforced.

The measure to exempt the Bank of Uganda from income tax was ill advised, as it has no relevance to the poor.

VAT at 17% was introduced on imports of: Flour and meal of dried legumes, Flour and meal of sago roots and tubers, Flour and meal of powder of certain products, Spirit type jet fuel.This will hurt the poor who import these products. This particular one is on imports only as a policy but has the benefit of promoting their local production.

9.3.2Challenges for the Tax PoliciesThe Parliamentary debates on the tax proposals after the debate on expenditure proposals leave very little scope for adjusting the tax proposals downwards as budgets are already constrained by the level of the budget deficits.

There was reasonable scope for meeting revenue projections for 2002/03 as the assumptions upon which these projections were based seemed to be reasonable. The Ministry of Finance complemented this with effective

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supervision of URA and the introduction of a Commission of inquiry. This Judicial Commission of Inquiry into the alleged corruption in the URA.

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10 Gender Analysis of Tax Incentives While granting tax incentives to promote investment is common in Uganda, there is no evidence to prove their effectiveness in attracting additional investments. Tax incentives have often been abused by existing enterprises disguised as new ones through nominal reorganization. Moreover, foreign investors are the primary target of most tax incentives and they base their decision to enter the country on a whole host of factors (such as natural resources, political stability, transparent regulatory systems, infrastructure, a skilled workforce), of which tax incentives are frequently far from being the most important one.

In addition, not all incentives are equally suited for achieving objectives of attracting new investments and some are less cost-effective than others. Unfortunately, the most prevalent forms of incentives found in Uganda tend to lack merit.

10.1Tax Holidays Of all the forms of tax incentives, tax holidays (exemptions from paying tax for a certain period of time) are the most popular in Uganda. They are governed by the Uganda Investment Code, which is administered by UIA. Although they are attractive to impose, they have numerous shortcomings. First, by exempting profits irrespective of their amount, tax holidays tend to benefit an investor who expects high profits and would have made the investment even if this incentive were not offered. In addition, they are difficult to administer , attract short lifespan projects, provide scope for tax avoidance and companies extend the duration of the holidays by changing the names of the project when the holiday ends.

In administering these measures, the government spends resources that yield no revenue and the enterprise loses the advantage of not having to deal with tax authorities. ‘Briefcase businesses’ tend to increase in number under this incentive regime.

The poor have no direct benefit from tax holidays granted by the government. It is believed that they generate employment for the poor but this requires empirical proof.

10.2Tax Credits and Investment Allowances One example of tax credits and investment allowances in Uganda is the Fixed Duty Drawback (FDD) scheme. Compared with tax holidays, tax credits and investment allowances have a number of advantages. They are much better targeted than tax holidays for promoting particular types of investment and their revenue cost is much more transparent and easier to control. These are offered mainly to promote exports. Imported inputs are taxed and a refund is made when export of the finished product occurs. A system of investment allowances could be administered in much the same way as tax credits, achieving similar results. Despite the advantages described above, poor

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women and men do not benefit directly from tax credits and investment allowances.

10.3Accelerated Depreciation Providing tax incentives in the form of accelerated depreciation has fewer of the shortcomings associated with tax holidays, and none of the disadvantages of tax credits and investment allowances. Accelerated depreciation is provided to companies in respect to corporation or income tax. Poor people do not benefit from this tax incentive as they do not own companies or pay income tax.

10.4Investment Subsidies While investment subsidies (providing public funds for private investments) have the advantage of easy targeting, they also have problems. They involve out-of-pocket expenditure by the government upfront and they may benefit nonviable investments as much as profitable ones. The use of subsidies to promote investment is not generally advisable as they are difficult to administer. The Government has several targeted interventions in the form of ‘Entandikwa’, ‘Youth Entrepreneur Schemes’ and micro-credit schemes in the Office of the Prime Minister. These benefit some poor people but the extent of the benefits requires empirical test. There is no gender deliberate distinction in the administration of these schemes.

10.5Indirect Tax Incentives Indirect tax incentives, such as those that exempt raw materials and capital goods from VAT, are prone to abuse and are of doubtful utility. Exempting raw materials and capital goods used to produce exports and local production from import tariffs are somewhat more justifiable. The difficulty with this exemption lies in ensuring that the exempted purchases will, in fact, be used as intended by the incentive. Establishing export production zones whose perimeters are secured by customs controls is a useful, although not entirely foolproof, remedy for this abuse. This aspect has been extensively used in the Finance Act are essential for industrialization and job creation that benefits the poor. In Uganda these are new schemes, which have not been practically tested. There is scope for labour exploitation in these schemes that mainly employ women. Government needs to pay attention to the plight of the workers.

10.6Administrative Mechanisms The mechanism by which tax incentives can be triggered can be either automatic or discretionary. An automatic triggering mechanism allows the enterprise to receive the incentives automatically once it satisfies clearly specified objective qualifying criteria, such as a minimum amount of investment in certain sectors of the economy. The relevant authorities have merely to ensure that the qualifying criteria are met.

A discretionary triggering mechanism involves approving or denying an application for incentives on the basis of subjective value judgment by the

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incentive-granting authorities, without formally stated qualifying criteria. Information about these is not readily available to enable firm judgment. The authorities may see a discretionary triggering mechanism as preferable to an automatic one because it provides them with more flexibility. This advantage is likely to be outweighed, however, by a variety of problems associated with discretion, most notably a lack of transparency in the decision-making process, which could in turn encourage corruption in providing the incentives. The automatic triggering mechanism has the shortcoming of the loss of discretion in handling exceptional cases.

10.7Conclusion While incentives can be useful in promoting investment and industrialization, there is no evidence of direct support to poor women and men. Most of the incentives go to the rich and foreign investors. In some cases, impact might ‘trickle down’ through employment creation and production of cheaper local goods used by the poor. For greater direct benefit to the poor, targeted investment subsidies and targeted credit could be investigated. However, generally the administration of incentives is difficult and open to abuse. Often the objectives are hard to attain.

The cost-effectiveness of providing tax incentives to promote investment is generally questionable. The best strategy for sustained investment promotion is to provide a stable and transparent legal and regulatory framework and to put in place a tax system in line with standard norms. Some objectives, such as those that encourage regional development, are more justifiable than others as a basis for granting tax incentives. Not all tax incentives are equally effective. Accelerated depreciation has the most comparative merits, followed by investment allowances or tax credits. Tax holidays and investment subsidies are among the least meritorious. As a general rule, indirect tax incentives should be avoided, and discretion in granting incentives should be minimized.

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11 Findings and ConclusionsTaxes are always necessary as a means of raising resources for financing public expenditure. Besides raising revenue, other social and economic objectives are pursued by way of taxation, including redistribution. In order to influence a tax system, the reasons why a particular tax was imposed need to be appreciated.

Tax policies are generally considered to be very sensitive aspects of public policy. As a result, there is a lot of reluctance by responsible officials in supplying primary data on government tax plans. This reluctance has some merits, as advance tax information impacts on the behavior of the prospective taxpayers and could defeat the objectives of the tax policies. Care needs to be taken in negotiating access to public information in the absence of the information law. The Government should be encouraged to enact the ‘Access to information Law’ prescribed in Article 41 of the Constitution. The purpose of advance information is to discuss whether the proposed changes are pro poor but the rich get the information faster and use it to the disadvantage of the poor.

There are a number of actors in tax policy and tax administration. The roles and interests of each of these actors need to be understood in order to effectively rally support for addressing gender concerns in tax policy formulation and administration.

There is an adequate mandate for engendering Uganda’s national policies and programmes in specific United Nations general assembly resolutions to which Uganda is party. Specific articles in Chapter 4 of the Uganda Constitution and other laws strengthen the mandate and case for a gender assessment of public policy.

There is a general lack of appreciation and misunderstanding between sex concerns as opposed to gender concerns among policy makers. There is a need to improve sensitization of policy makers in this respect.

Gender budget methodologies for analysing revenue are less well developed than those for analysing expenditure. However, revenue methodologies can draw on methodologies for expenditure with appropriate variations. Given the relative lack of attention to revenue aspects world-wide, FOWODE’s initiative in this area should be highly commended and appropriately supported.

The URA is well organized and has met the targets of revenue set by MFPED through measures outlined in their planning documents, i.e. the medium term Corporate Plans and Annual Business Plans. While women hold key leadership responsibilities in URA, this has occurred mainly by default and not by design. There is no evidence of deliberate efforts to deal with matters of gender balance in tax administration. URA policy statements should deliberately set gender objectives and implement them. The Human Resource Manual is also generally silent about concerns of gender balance.

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While female staff are fewer in number than male staff, there is no evidence of discrimination in pay between the female and male workers in URA. PAYE is also paid equitably by both female and male staff in accordance with their earnings, as provided for by the Income tax laws. The fact that PAYE is regressive is a matter of concern that can be subjected to a separate inquiry. This entails dealing with incomes and employment in the whole economy, clearly outside, the part in TOR about URA was discussed.

Trade taxes account for the largest potion of total taxes, indeed more than 50%. This discourages exports and acts as a deterrent to regional integration. Tax reform efforts should be geared towards reducing the role of trade taxes in tax revenue. Efforts should be geared increasing local productivity and regularizing the informal sector so that it makes appropriate contributions to taxes. More non-tax revenue sources should be moved to URA for collection.

Tax policy in Uganda is riddled with a number of difficulties ranging from lack of data on informal sector incomes, poor tax administration due to poor motivation and facilitation of URA staff, through to pockets of economic and political powers that prevent tax reforms that increase their tax burdens. All these obstacles need to be examined in order to facilitate a meaningful tax reform programme. Presently tax policy is about the art of what is possible rather than what is optimal.

There is no evidence that the present tax structure in Uganda is, strictly speaking, based on equity or efficiency considerations. There is also fear among policy makers about making major changes in the tax structure. As a result changes in taxation policy tend to be incremental. There is a need to develop an efficient and equitable taxation system based on an assessment of the needs and priorities of women, men and marginalized groups, and the gender implications of different tax systems.

When dealing with poor women and men, the role of direct taxes on income, profits and interest have no major significance, as there is a threshold below which tax is not levied. The matter of the optimality of the threshold should be the subject of further inquiry. Available tax / labour data is not disaggregated by gender.

Majority of poor men and women are mainly subjected to indirect taxes, especially VAT on local and imported goods. These taxes increase the price of the consumption goods and services of the poor and of their inputs. This is an issue that requires further attention. The activities affected by these forms of tax have been identified but the exact impact of these taxes on poor people differs from individual to individual and from community to community.

Women generally provide the reproductive and care services to the economy without payment and this is a form of tax which some scholars call a ‘reproductive tax’. In return, women need some fiscal considerations in terms

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of tax exemption from goods primarily used by them. These are goods and services that have impact on reproductive health and hygiene, those goods that have impact the time use and those with impact on leisure. Introducing such measures could increase the productivity of women and so increase the general tax base for income tax.

The budget of the URA is apportioned to departments in accordance with departmental business plans and activities. There is no evidence of gender being taken into account in budget allocations. Engendered URA business plans are the starting point for engendering the URA budgets.

From 2000 to date there have been a number of tax reforms. Some of them involve change in tax rates while others are administrative changes and changes in tax incentive regimes. All these reforms have improved revenue collection as their central objective. There is no evidence that incentives allocated have any deliberate attempt to address gender concerns. They also do not necessarily target poor women and men and vulnerable groups. Where investment subsidies are provided to the ‘poor’ a lot of discretion is exercised with questionable impact. A separate inquiry is necessary to ascertain the impact of ‘Entandikwa’ and Youth Entrepreneur Schemes in the Office of the Prime Minister. The schemes are a form of subsidy and very popular in Uganda. They are credit schemes on favourable terms to communities administered by the government.

Taxes are administered through tax laws and subsidiary legislation. The documents are voluminous and difficult to comprehend. In addition, tax law documents are generally not available to the public. URA should intensify tax education campaigns and provide summary literature on key aspects of tax laws and their administration.

The tax incentives offered in Uganda are aimed at a few rich and learned taxpayers who are capable of internalizing and interpreting the relevant laws on and take advantage of the tax incentives. There is no evidence that the poor benefit directly from incentive regimes. In addition, the incentives are complicated to understand and their administration is deficient. There is a need to simplify the incentive laws and make their administration transparent and accountable.

Tax laws are very extensive and have a multitude of aspects, which are open to various interpretations. In order to do a thorough assessment of their gender impact it is necessary to deal with one tax policy or aspect at a time and carry out its gender impact assessment and make recommendations. Dealing with all aspects at one go has the danger of obscuring the necessary detail required to make a case for gender tax reform.

URA should be encouraged to maintain TINS that that explicitly show sex of the taxpayer and thus enable reporting of tax revenue contributed by female and male taxpayers at least for individual tax heads.

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There is a need to rally support for gender-sensitive taxation so that policy makers and politicians appreciate the need for gender-sensitive tax policy impact assessment and evaluation. There is a need to establish gender issues as a policy matter in principle so that any gender work on budget and taxation has a policy backing that is widely appreciated and accepted.

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12 Appendix 9: People interviewedMs. Annebrit Aslund – Commissioner General – URAMr. Justin Zake – Deputy Commissioner General – URA Ms. Beatrice Kiraso – Chairperson Budget CommitteeMrs. Jennifer Kagwa – Commissioner Human ResourcesMr. Frank Katusiime – Head Corporate Service DivisionMs. Victoria Nabitaka – Corporate PlannerMr. Sam Muwanga - Corporate PlannerMs. Cissy Muwanga – Head Monitoring and EvaluationMr. Dan Mwanje – Head Strategic Planning Unit – CustomsMrs. Susan Ebale – PRO BARSMr. Lawrence Kiiza – Commissioner Tax Policy DepartmentMr. Ogwapus Moses – Tax Policy Department

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13 Appendix 10: Tax lawsThe Income Tax Act, 1997 The Stamp Duty Act, (Cap172) as amendedThe Finance Statute 1998 (statute No. 4 of 1998)-section 12 and the seventh scheduled to the statute (which provide for the imposition and collection of road users tax) as amended’ The Customs Tariff Act, 1970 (Act No. 17 of 1970) as amendedThe East African Customs Management Act (EAC Cap. 27) as amended The Value Added Tax Statute, 1996 as amended. The Finance Statute 1989 (Statute No. 3 of 1989)-Section 3 (which imposes a commission on import licenses) as amendedThe Traffic and Road Safety Act, 1998 (Act No.15 of 1998) and Regulations. All provisions for the collection of license fees and other fees, fines (other than fines imposed by Courts) and other levies collectable under the Act.The Excise Tariff Act (Cap. 174) as amendedThe East African Excise Management Act (EAC cap. 26) as amended. The URA Statute 1991

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14 Appendix 12: ReferencesBartle R and Marylyn M. (2002), The Potential of Gender Budgeting. Has its

day come?

Budlender D, Sharp R and Allen K. (2002), How to do a Gender a Gender Sensitive Budget Analysis

Budlender D, et al. (2002), Gender Budgets Make Cents

Commonwealth Secretariat. (1999), Gender-Disaggregated Beneficiary Assessment of Public Service Delivery and Budget Priorities

Espinosa G, et al. (1999), Sexual Reproductivity in Mexico. Programs, Processes and their Financial Implications

Hartzenberg T. (1996) “Taxation” in D Budlender (ed) The Women’s Budget. Idasa, Cape Town

Mbulamuko L. (1999), Gender Issues in Agricultural Development

Mbulamuko L. (2003), A Gender Budget Analysis of the Finance, Planning and Development Sector in Uganda

Smith T. (2001), Women and Tax in South Africa

Sugiyama N. (2002), Gendered Budget Work in the Americas: Selected Country Experiences

15 Other working Documents usedCoopers and Lybrand (1991), A Draft Report on Planning for URAGOU - The Constitution of Uganda 1995MFPED - The Finance Bills and Acts 2002 to 2002MFPED - The Budget Speeches for years 2000 to 2002URA - Annual Revenue Reports 2001/02 to 2002/03URA - Business Plan 2002/03 URA - Corporate Plan 2002/03 – 2006/07URA - Human Resource Manual 1999

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