Nkumba University

School of Business Administration

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INTRODUCTION

Government its self cannot manage to provide all public services without other sectors
contribution. Thus there is need for individuals to contribute something though it might be little
but it is more important and this contribution is referred to as tax.

Definition of a tax
A tax is referred to as a compulsory levy imposed by the government upon the assessee of
various categories paid without a corresponding return.

According to Dr. Dalton, he defined a tax as a compulsory contribution imposed by the

authorities irrespective of the services rendered to the tax payers in return.

From another perspective, a tax can be defined as a compulsory contribution levied by the
government upon people to meet the expenditure which is for public services.

Philippe M. Mubiru defined a tax as a legally compulsory transfer of money from the public to
the government mainly as government revenue. He further says that a tax is a non quid-pro-quo
payment where payment received by a tax payer from government does not correspond to the
amount of tax paid.

Definition of Taxation

According to principles of taxation for business and investment planning by Jonnes (1998),
taxation is the process of imposing and collecting taxes which involves enumeration, assessment,
tax collection, tax service and control.

According to Plank and Jackson (1953), taxation is the process of exaction where liabilities are
imposed on tax assesee who may be individual or groups to pay a certain amount from the fact
that they have a specific income or they hold certain intangible or tangible property.

History of Taxation in Uganda:

Taxation in Uganda traces its roots in the Hut tax that was introduced a way back in 1900iple
objective. It was a local government tax whose principle objective was to attract citizens into
monetary production, and to mobilize voluntary labor for production of cash crops and minerals
for exports. The Hut was transformed into poll tax in 1905, following the introduction of the
cotton growing in Uganda. Poll tax was meant to raise revenue for the administration structure
imposed by the colonial government on the natives.

The first tax legislation was introduced in Uganda in 1919 under the local authoritys
ordinances. It was subsequently subjected to amendments to iron out the problems of tax
collection, and also to meet government funding needs. There were increasing revenue demands
by the colonial government of the tax system, and rising non-compliance by the natives.

We should also note that in the year 1939 income tax was introduced in Uganda, but was
collected jointly with the tax from the governments of Tanzania, Zanzibar and Kenya. The tax
was mainly paid by the European and Asian residents who were in the business or were
employed, while the majority of natives remained tax exempt since they were peasants. With the
creation of the East African High Commission, the East African income tax Department was
made autonomous in 1942, followed by the enactment of the East African income Tax
Management Act of 1958. A special legislation imposing a source tax on employment
emoluments under the system Pay As You Earn (PAYE) was introduced in 1962 to ease the
assessment and collection of income tax on employment income.

Also,the 1958 Act was amended and remained in force until 1974 following the disintegration of
the East African Community (EAC), and was the superseded by the income Tax Decree of 1974.
Earlier on, the joint EAC administration had just introduced various tax legislations such as the
East African Custom and the Excise Management Act of 1970 for the management,
administration and collection of duties on imports and local manufacturers.

There was also introduction of four tax legislations, namely: The Sales Tax Act of 1970, the
Stamp Duties Act of 1970, the Traffic and Roads Safety Act of 1970 and the Finance Decree of
1972 which imposed sales tax on local goods, Stamp Duty on various instruments, various fees
and charges relating to motor vehicles and drivers permits and Commercial Transactions Levy
(CTL) on various commercial services.

A part from some of the legislations like the Sales Tax Act, CTL, Income Tax Decree and
Finance Decree, others are still in use subject to amendments.

In 1996, Sale tax and Commercial Transactions Levy legislations were abolished upon the
introduction of Value Added Tax (VAT) under the Value Added Tax Statute of 1996. In 1997,
the Income Tax Decree was replaced by the Income Tax Act of 1997; while the Traffic and Road
Safety legislation was revised into the 1998 Act. From a collection of the government policy
statements issued in the budget speeches and the background to the budgets, all the tax reforms
have always been aimed at enhancing the countrys tax base in order to minimize economic
dependency on foreign resources (loans and grants ) that tie the country into perpetual debt
servicing.

Classification of Taxes in Uganda:

For easy tax administration and collection in Uganda, various classifications of taxes have been
developed and these can be explained as follows. Classification inform of:

(a) Direct taxes

(b) Indirect taxes. According to the incidence of tax. That is the final resting place of a tax.

Direct Taxes
These are taxes where the incidence of a tax cannot be shifted by the tax payer onto some other
persons. These taxes are further classified into various forms which are levied upon incomes and
property of individuals and companies.
Its major characteristics are that the incidence falls on the unit concerned and cannot be shifted
onto another economic unit.
Forms of Direct Taxes in the Economy of Uganda
Corporation tax / taxation of companies.
Personal income tax which is payable by individuals.
Taxation of partnerships.
Taxation of trusts, levied from profits of a partnership/ firm.
Taxation of small tax payers.
Wealth/ property tax levied on property/ past accumulated capital.
Capital levy. Imposed when there is urgent need for revenue
Capital gain tax
Death/ estate duty levied on the property of the deceased.
Agricultural revenue tax and the local services tax.
Gift tax imposed on the gifts among the living.

Indirect Taxes:
These are taxes where the incidence can be shifted by the tax payer onto other persons (person).

Indirect taxes are characterized by the following;

These taxes are usually and made on commodities unlike the direct which are made on
incomes and property.
They can be shifted by a tax payer onto some other persons. For example a retailer can
shift a tax to a customer in form of high prices depending on the elasticity of demand.
They are not directly collected by the government but indirectly through intermediaries
They are not compulsory. For example one can leave paying a tax by not buying it.
These taxes also tend to be regressive in nature.

Forms of Indirect Taxes in Uganda:

The Value Added Tax (VAT) which is also a consumer expenditure tax payable by
individuals and firms at a rate of 18%.
Taxation of rental income. Taxed/le vied on earned/received rental income per year.
Stamp duty tax which is levied on commercial transactions such as transfer of stock and
marketable securities, debenture or mortgage , transfer of immovable property and so on
Withholding Tax which is deducted at source by one entity upon making payments for
another entity.
Excise duty and import duty levied on different categories of products.
The local hotel Tax. Levied on hotel rooms and is paid by hotel occupants when settling their
bills.

The Progressive, Proportional, Regressive and Digressive Taxes in Uganda

Progressive Tax. A tax is said to be progressive when the tax rate and the absolute tax amount
increases with an increase in revenue/income.
Proportional Taxes. A proportional tax is one where the tax liability increases with the increase
in income. Here the tax rate remains constant but the liability will be different at different levels
of income.
Regressive Tax .Here the tax liability as a proportional of income falls with increase in income
though the absolute liability may increase.
Digressive Tax. This is a tax that starts by being progressive up to a given level of amount of
income above which the tax becomes proportional. This means that relatively less tax is paid at
higher income levels.

According to the economy of Uganda, Revenue collection is a vital component for every nation
to sustain its economic developing. Uganda atypical of any other underdeveloped economy, is
characterized by a high proportional on Gross Domestic Product.(GDP) from subsistence
activities. Its mineral resource base is small. The economy is largely dependent on exportation of
a few non processed agricultural and mineral products like, tea, tobacco coffee and cobalt among
others. On the other hand imports ranging from industrial machinery, manufactured consumer
goods including fuel, dominate the trade sector with in Ugandas economy.

The Taxation system in Uganda is carried out by different bodies/ Organizations such as the
Uganda Revenue Authority (URA) and the Local Government among others.
For effective tax administration and collection however, during and before the administration
and collection of taxes these bodies should put in mind the following cannons or principles
(characteristics) of a good tax system so as to make it convenient to the tax payers.

The following are the principles/ canons of a good Tax system.

By definition principles of taxation refers to the rules and regulations which should be observed
in tax payment, assessment, collection and administration.

These canons were first laid down by economist Adam Smith in his famous book the wealth of
nations. Within this book, Smith gave only four canons of taxation and these four are now
known as the original or main canons of taxation. As time changed, governments expanded
and became much more complex than what it was at the Adams time. Soon, a need was felt by
modern economists to expand smiths principles. The tax system should strike a balance between
the interests of the tax payer and that of the tax authorities for the effective collection and
administration.

The tax structure is part of the economic organization of a society and therefore fit in its overall
economic environment. No tax system that does not satisfy these basic conditions can be termed
a good one.
We should therefore note that the state in order to pursue its objectives, the principles be
followed in structuring the tax system.

The principle of certainty. According to Smith, the tax an individual is to pay should be
certain not arbitrary. The tax payer should know the tax he /she is to pay in advance, at
what time he has to pay, in what form the tax is to be paid to the government. In addition
the government should also be certain about the amount that will be collected by way of
tax. Hence may lead to smooth administration.

The principle of equity. Tax assessment should be in such a way that tax payers bear a
proportionately, equal burden. Equity is based on humanitarian grounds. Each person
should pay to the government depending upon his ability to pay. That is, the rich people
to pay higher taxes to the government and the poor to pay less tax.

The principle of convenience. The mode and timing of tax payment should be as far as
possible, convenient to the tax payers. Every tax ought to be levied at the time, or in the
manner in which it is most likely to be convenient for the contributor to pay it. For
example land revenue is collected at a time of harvest and income tax deducted at the
source. All this is way to effective tax system in the economy of Uganda.

The principle of economy. This principle states that there should be economy in tax
administration. The cost of tax collection should be lower than the amount of collected. It
may not serve any purpose if the taxes imposed are widespread but are difficult to
administer.

The principle of productivity. The fiscal authorities should be able to predict and
forecast accurately the revenue a particular tax would generate and at what rate it would
flow. If at all it has been able to predict, tax system in the Ugandas economy would be
effective all the time.
The principle of elasticity. A good tax should change directly with a change in tax base.
That is, if it increases the tax charged on that tax base should also increase. And an
increase is a sign of effective system management in the economy.

The canon of flexibility. It should be easily possible for the authorities to revive the
structure both with respect to its coverage and rates in order to suit the changing
requirements of the economy. With changing time and conditions the tax system needs to
change without much difficulty. Hence should not be rigid at all.
 The canon of simplicity. It should not be complicated that makes it difficult to
understand and administer and results into problems of interpretation.

In an attempt to improve tax administration in the economy of Uganda, various bodies such URA
and the local government were put in place. It is these two that are fully responsible for
administering and collecting taxes in Uganda.

(a) The Structure and Administration of the Uganda Revenue Authority-URA

(Central Government)

The Uganda revenue collection is equivalent to 12.5% of the GDP which is below other
countries in East African community and the average of the sub Saharan Africa. The low
domestic collections relative is accounted for largely by weaker than expected performance of
trade taxes which has suffered from a sharp slowdown in import volumes and an unfavorable
USA dollar or to shilling exchange rate. A number of administrative challenges such as
undervaluation and evasion also continue to constrain growth in revenue collection.

Despite of the low revenue collections, taxes on domestic taxes registered good performance
during the financial year 2009/2010, with PAYE expected to grow by 20.7% compared to the
year 2008/2009, an expected surplus of Ushs. 73bn from corporate income tax and local VAT
growth of 36.2%, most of which have been boosted by improvements in tax administration.

In an effort to increase its domestic revenue, Uganda is currently focusing on making further
improvements in tax administration, building a culture of tax compliance and enhancing public
confidence through improved service delivery than making tax rates adjustments.
In this regard the URA, has implemented modern procedures and systems for investor support
ranging from introduction of e-tax, fast clearance of customs goods, export information services,
and tax payers education services and faster handling of complaints.

A number of systems have been developed to curb tax evasion, reduce revenue leakages and
simplify compliance and these include;
Tax identification numbers (TINs) to reduce time foe filling returns and improve tracking
of transaction and tax payers.
 IT supported revenue management mainly for monitoring and control
Corporate tax payer self assessment.
Compliance tax payer exemptions from withholding tax.

The URA is headed by the Commissioner General. In the income tax act, he is referred to as the
commissioner. He is appointed by the minister on recommendation of the board.
The URA commenced in September 1991. It is a body corporate with perpetual succession it is
an agency of the Government under the general supervision of the minister.

The functions of the Authority are as below;

(1) To administer and give effect on the laws or the specified provisions of the laws set out in
the first schedule to the URA statue and for that purpose to assess, collect and account for
all revenue to which all those laws apply.
(2) To advise the minister on revenue Implications, tax administration and aspects of policy
changes relating to all taxes referred to in the first schedule.
(3) To perform such other functions in relation to revenue as the minister may direct.

The following are contained within the first schedule of the URA statute as it was amended
The income tax decree 1974(replaced by the income tax Act 1997) now chapter 340 of
the laws of Uganda.
The stamp duty Act
The finance statute 1988(regarding road users act)
The customs tariff Act 1970
The east African customs management Act
The finance statute 1989(section 3 regarding commission on import licenses)
The tariff and road safety Act 1998
The excise tariff Act
The value added tax statute 1996 now chapter 349 of the laws of Uganda.

The governing body of the authority is a board of directors which consists of;
A chairman appointed by the minister
The commissioner general of the authority
One representative of the ministry of finance
One representative ministry of trade and industry
 One representative of the Uganda manufacturers association.
Two other members appointed by the minister.

The appointed members of the board should be persons of special knowledge and experience in
taxation matters, provided they have no part-time or full time activity or interests that conflict
with or impairs fulfillment of their duties as board members.

The board is responsible for monitoring the revenue performance of the authority and
determining policies relating to staffing and procurement of the authority.

Section 5(4) of the statute gives the minister overriding powers over the board. It says the
minister may give directions to the board regarding the performance of its functions and it shall
be the duty of the board to comply with those directions.

The board is empowered to co-opt any person to participate in its deliberations, but a person so
co-opted has no right to vote.

The commissioner general as chief executive of the authority is responsible for the day to day
operations of the authority. He is assisted by other officers appointed by the board .These include
(as of May 2005).

The commissioner ,board secretary/head legal department

The commissioner corporate services
The commissioner, international trade (customs and excise) department.
The commissioner, domestic taxes department.
The secretary to the board provides secretarial services to the board as well as expertise to the
authority. The other officials may sit in board meetings but cannot vote. The board appoints
other officials and staff as needed by the authority.

The Internal Revenue

In the restructuring of the authority departments have been organized .The domestic direct taxes;
domestic indirect taxes and expansion and collection departments have been merged to form the
domestic taxes department. Income tax falls under his department. International trade (customs
and excise) is a separate department headed by a commissioner.
The domestic taxes are divided mainly into six sections;
Large taxpayers
Audit
Objections and arrears management
Returns and payments processing
Non-tax revenue
Field delivery
Each of these sections is headed by an assistant commissioner (AC) .Under each AC there is a
managers and below them supervisors or inspectors.

The Structure of the Uganda Tax System:

Executive
-- President approves parliaments bills

Parliament ministry of finance,

planning
--Enacts laws that and economic
development
Guide URA in its -- Represents the executive arm in
the
Operations tax administration
--Approves policy --Oversees the operations of the
URA
--Drafts government tax policies
--Funds the operations of the
URA
--Ensures proper government
budgeting,
utilization and accountability.

URA Board Administration

-- Administrators and gives effect to the laws set out
In the first schedule of the URA Act Cap 196
--Advises the minister on revenue implications,
Tax administration and aspects of policy
Changes relating to all the taxes
---Performs such other functions in relation to
Revenue as the minister may direct

Customs deals with, Domestic taxes deals

with,
--Import duty -- VAT
--VAT on imports --income tax
--Withholding tax on imports --Rental tax
--Trade regulations --Excise duty
--Gaming tax
 Structure of the Domestic Taxes Department
Commissioner
DTD

Asst Asst Asst Asst Asst

Asst
Comm Comm Comm Comm Comm
Comm
Large Field Audit Objections & returns &
Non-tax
Tax Delivery Arrears Payments
Revenue
Payers Management Processing

Managers Managers Managers Managers Managers

Managers

Supervisors Supervisors Supervisors Supervisors Supervisors

Supervisors

Other staff Other staff Other staff Other staff Other staff Other
staff.

The field delivery section/ department is one which contains the extension offices spread all over
the country with offices in most of the towns. The main centre of income tax administration is
Kampala central in crested towers. In Kampala there are satellite stations, on Jinja road opposite
the police station known as NAKAWA, IN Katwe Town as MAKINDYE in BWAISE,
ENTEBBE and MUKONO. And there are three regional offices in jinja, Mbale and Mbarara

Rationalizing the Tax Structure of Uganda

After the 1980s economic crisis, Uganda, like other Sub-Saharan countries, recognized the need
to rationalize and harmonize the tax rates. The objectives were to attract and promote investment
in Uganda, increase revenue yields, and simplify tax administration. The Table below outlines
these reforms, showing the rates of each major tax before and after the reforms
 Changes in Tax rates and tariffs, Uganda, 1993present

Type of tax Previously Currently since

Income tax
Company 60% 30% 1994
Mining 60% 24%-45% 1997
Corporations
Individual 10%-70% 10%-30% 1994
Import duty Maximum 20% 0%,7%,15% 1998
Comesa 0%,4%,6%
Excise duty Maximum 50% 05,10% 1999
Sales tax Maximum 50% Abolished 1996
CTL Maximum 15% Abolished 1996
Value Added Tax 0%-17% 1996
Export tax Coffee stabilization Abolished 1993
tax
30%

From the above table, the corporate income tax was lowered from 60% to 30% in 1997, and the
maximum individual tax rate was reduced from 60% in 1987/88 to 30% in 1993/94.The many
wide-ranging exemptions that have been granted to special sectors over the years including a
number of Ministers powers to exempt have been abolished. They include provisions granting
tax holidays under the Investment Code of 1991, which were repealed in 1997, and a provision in
the Customs Management Act.

A scheme of capital deductions and allowances was introduced in 1997 through the Income Tax
Act of 1997 to replace the abolished tax holidays. Other allowances include deductions or
exemptions for ordinary business expenses, meals, refreshments, and entertainment expenditures,
interest payments, and business obligations. Carry-forward losses were also introduced so that an
assessed loss arising out of company operations, including losses legally resulting from
investment incentives, are allowed as deductions in determining the taxpayer chargeable income
in subsequent tax years

Tax exemptions on industrial inputs and specialized inputs were enacted. The government
extended tax exemptions to imports of industrial inputs such as raw materials, industrial
machinery, computers, printers and accessories, machinery used for processing agriculture or
dairy products, dental, medical, and veterinary equipment. 140 Uganda now offers a tax-free
export policy to promote production for export. All exports are tax free and zero-rated, while at
the same time, a duty drawback system is in place under which a producer or exporter can claim
back the taxes paid on certain inputs during the production of the goods declared for being
exported.

The URA is the central body mandated to assess, collect specified tax revenue, administer and
enforce laws relating to such revenue. This statutory body conducts and regular audits and
investigations of tax payers.
Uganda Revenue Authority is mandated to govern taxes in Uganda .the Uganda tax system is
governed by five major elements as listed below.
Corporate and personal income tax
Value added tax(VAT) on goods and services
Customs and excise duties.
Stamp duty
Statutory levies and social security payments.

Taxes are collected by self assessment and by withholding tax on payments to residents and non
residents. A non employer is obliged to withhold an account for income tax on his/her employee
remuneration and benefits (the PAY system). Tax payers are charged with penalties and interest
for non compliance and late payment of taxes in Uganda.

The URA was formed by an act of the parliament later on a large tax payers unit was formed to
cater for the interests of the large tax payers. A quality assurance inspectorate and appeal
department was created, and a tax appeal department also created and a tax appeal tribunal
(TAT) too was also constructed.

URA uses the income tax, cap 340 to administer the collection of taxes and this current income
tax Act, cap 340 became into force on 1st, July 1974. The URA assesses and collects taxes from
the public on behalf of the government but does not draft laws. URA publishes practice notes
and further explains how to implement certain provisions of the tax law. However, practice
notes are the binding on URA but not the tax payer.

The URA (Central government), therefore is responsible for the collection and
administration of the following taxes in Uganda.

Value Added Tax (VAT),

This is tax imposed on value added at every stage of production (in the chain of production and
distribution of goods and services. It is a consumer expenditure tax is payable by individuals and
firms at a rate of 18%.

Registration of V.AT is straight forward and free of charge and this is done by filling in a special
V.A.T form and attaches a copy.

Sales Tax,

This is a tax imposed by URA mainly bases on retail sales on tangible state tax personality. State
sales tax to be added to state tax transaction. The tax may take a form of a business or privilege
tax levied on the purchasers regardless of the form. The seller is responsible for collecting the tax
at the point of sale and remitting it to the government.

Personal Income Tax,

These are taxes imposed on individuals also reside in the state and non residents who earn
income within the state during the taxable year. The technical details of the computation of
taxable income very considerably from state to state but the tax rates are uniformly modest.

The sources of personal income to individuals mainly include employment, business and
property income. Different tax rates apply depending on whether the individual is a resident or
non resident of Uganda for tax purposes for example PAYE, which is an installment income
system under which employers are required to deduct tax installments from their employees
salary or other employment income.

Capital Gains Tax

This is tax levied on gains made by the seller of a certain capital asset whose value has
appreciated considerably at the time of sales .however such gains are termed as un earned
income.

Corporate income taxes/taxation of companies

Many states allow their citizen and countries to tax either the gross receipts or not income or
both incorporate and unincorporated business operating within the locality. For example a
company is liable to pay tax separate from its shareholders where a company is incorporated in
Uganda and its management and central is exercised in Uganda in a particular year income then
that company is liable to taxation.

Customs Duties/Tax,

These include import and export duties, where the import duty is levied on different categories of
products. This is spelt out in the financial bill harmonized tariff code.
It is charged on the goods that are imported into the country and it varies with the nature and
volume of the goods imported

While export duty is charged on the goods exported from the country.

Stamp Duty

This the tax levied on the various commercial transactions such as, transfer of stock or
marketable securities, transfer of immovable property ,debenture or mortgage etc as seen in the
table below.

Schedule of Stamp Duty:

Transaction Stamp duty.

Company incorporation or increase of share 0.5% of share capital

capital.
Transfer of stock or marketable securities. 1% of the value of the value of securities
Transfer of immovable property 1% of property value
Lease 1% of value lease

Capital levy

This is tax imposed on the tax payers by the government when there is urgent need for money.
For example during emergency situations it can be levied to reduce the wealth of the very rich
individuals in the society.

Taxation on partnerships,

Income tax assessment for partnerships can be made either in respect for individuals, partners or
in the partner name. The profits of a partnership including a firm carrying a trade or profession
are taxable.

Recommendation

Therefore tax policy design must take into account the administrative dimension of taxation at
every step of the process. Even though reform of tax policy and tax administration entails fiscal
and political costs, there is no other way to develop a sustainable tax system. At the very least,
Uganda needs to move to computerized tax processes not only to improve administrative
functioning, but to reduce the contact between taxpayers and tax officials in order to counter
corruption.
However, new technology alone is not sufficient if the government does not recognize the need
for skilled tax officials. Effective tax administration requires qualified tax officials with requisite
skills to maintain these systems and operate them to their fullest potential. A computer-based
revenue administration would have different skill needs than a system based on manual
processes.

B At the Local Government Level:

Local governments receive transfers from the central government as well as grants from the
international community. These make up almost 90 percent of funds made available to local
governments to execute local responsibilities. Local governments then supplement these with
own source revenue raised at the local level .Local authorities account for a significant share of
government spending, and therefore play a fundamental role in the implementation of national
growth and poverty reduction strategies. In Uganda it is one in every three shillings spent at the
Local Government Units (LGU) level.

According to Sarzin (2007) own source revenues in Uganda have declined significantly relative
to total local government finances. A recent IMF study suggests that local revenues as a
percentage of total local government resources has declined from approximately 80 percent in
the early stages of the decentralization process (1997/98) to about 20 percent in 2004/05.

Two main factors account for this trend;

The rapid increases in central government transfers to the local level, largely donor
financed, which have undermined incentives for own source revenue mobilization.

Recent changes to the framework for local taxation have undermined the revenue raising
authority of Local Government Units (LGUs) and have led to a narrowing of the local tax
base.

Many local taxes were criticized for being regressive and for having a negative impact on
economic growth. Local taxes, particularly the Graduated Tax, market dues and business
licenses, were criticized for having a negative impact on income distribution due to the steep
regressivity of tax instruments.
Moreover, local taxes, particularly market dues, have been criticized for having a negative
impact on economic growth by distorting the relative prices of goods and services. These
concerns reinforced the momentum towards modifying or suspending several local taxes. The
suspension of the Graduated Tax from FY 2005/06 significantly reduced own source revenues
especially in rural areas. One of the reasons for its abolition was the disproportionate burden of
the tax on poorer households.

While the Government provided LGUs with compensation of USh 34 billion in 2005/6, this was
not sufficient to fill the funding gap arising from the suspension of the tax, which was in the
order of USh 45 billion in 2004/05. (Sarzin (2007) argues that there is a significant difference, in
decentralization and political terms, between an LGUs own source taxes and a transfer from the
Central government).
In 2006, changes to the framework for property taxes and market fees further increased the fiscal
pressure on LGUs. While property taxes were levied on commercial and industrial buildings (in
both rural and urban areas) and residential buildings in urban areas under the 2005 Local
Government (Ratings) Act, this changed in 2006 when the Act was amended to exempt owner
occupied residential housing, which accounts for a significant share of residential property in
urban areas. (According to the 2006 National Household Survey. 78 percent of Ugandan
households are owner occupiers.

In Kampala, however, 28 percent of household live in owner occupied housing.)This amendment

also significantly undercuts the local tax base, and also removes a key accountability link
between taxpayers/voters and their elected councilors.

Findings on local compliance revealed that local administration uses rigorous activities such as
identifying and registering taxpayers , assessing their tax obligations (amounts), sensitization of
tax payers, collection of such taxes and as well as monitoring and if these activities are fully put
in place this will lead to increased compliance.

Types of Taxes collected and Administered by the Local Government

Local governments are heavily dependent on the real tax and personal property taxes which are
frequently referred to as a dvalorem tax. And they are known to account for more than 75% of
the total revenue collected among the taxes administered by the local government.

(a) Real property Taxes,

The state allow local jurisdiction to tax the owners of the real property situated within the
jurisdiction. Real property can be defined as land whatever is growing on land or permanently
fixed to it. Real property taxes are levied annually and are based on the market value of the
property as determined by the local government itself.

However the elected/ officials called assessors are responsible for deriving the value of reality
sited within their jurisdiction and informing the owners who disagree with the assessed value on
an administrative or judiciary proceeding.

(b) Property Tax rates

According to this tax, the spring field city council decides that the city must raise 1.2million
dollars of the real property tax revenue during its next fiscal year. This is because spring field tax
assessor determines that the total value of the real property located within the city limits is
currently 23million dollars. The sets the nominal tax rates for the upcoming year at 5.2% (1.2
million 23 million) this rate can be adjusted each year depending on spring fields future
revenue needs and the fluctuating value of its property tax base.
The local governments may establish different tax rates for different classifications of the
property. For example a township may decide to tax commercial reality at a higher rate than
residential reality or a or county may tax the land used for agricultural purposes at a higher rate
than land maintained for scenic purposes. Government may grant permanent tax exempt status to
reality owned by the charitable, religious or educational organizations and public owned reality.

However there are other types of taxes collected and administered by the local government
as explained below

1 Property Tax abatements

An abatement is tax exemption granted by the government for only a limited period of time.
Government usually grants s abatements to lure [commercial enterprises into their jurisdiction
thereby creating jobs and benefiting the local economy.

2 Personal property Taxes;

Forty one states permit localities to tax the ownership of personality defined as any asset that is
not really like real property taxes. Personal property taxes are based on the value of the asset
subject to tax. However such value is not usually assessed by the local government instead,
individuals and organizations must determine the value of their taxable personality render that is
report the value to the tax assessor. Government has therefore responded to their practical
problems by linking the payment of the personal property tax to asset registration or licensing
requirements.

3 Local Service Tax;

In April 2008, the parliament of Uganda passed the local governments (Amendment) bill, 2008
introducing the local service tax. This tax is levied and collected by all local governments in the
country in collaboration with the employers and took the effect on july-2008.it is paid by the
people in gainful employment, practicing professionals, business people and commercial farmers
producing on a large scale ranging from 100000 and above. Paying a minimum of 5000 and a
maximum of 120000shs per annum (p.a).

All employers have a statutory duty to determine the local service tax from the salaries and
wages of their employers. The employers referred to include, government ministries, Agencies
and departments, local government, private and public institutions and companies.

However members of UPDF, Uganda prison lie under the local service tax, the local hotel tax
also introduced in April 2008 in the local governments (amendment) setting their bills. The
management of the hotels/lodges has a statutory duty to collect the tax and remit it to the local
government regularly on the monthly basis. The local hotel tax is levied on the room occupants
or guests and it is an indirect tax.
4 Development Tax;

This tax is also charged by the Uganda local governments on business and employees in their
locality. It is charged to develop the area where the businesses are located. It is intended for the
social development in the area such as education, health services among others.

5 Environment Tax;

This tax includes; natural resources, green house gas tax (carbon tax) sulpheric tax and others
charged on corporations by Uganda local government in order to reduce the environment impact
by re-pricing.

6 Property or wealth Tax

This is tax a property or the past accumulated savings or capital. Whereas this tax can be a good
method of distributing wealth, it can discourage savings, investments and accumulation of
wealth.

7 Tolls,

Those are fees charged to travel via a road, bridge, tunnel, canal, waterway or other
transportation facilities by Uganda local governments used to pay for public toilets, roads among
others.

8 Gift Tax;

This is a tax imposed on gifts among the living. This can be a means of stopping dick people
from a voiding death duty by passing the property onto heir inform of gifts. It can also be a
method of limiting the giver from disposing off his/her property in form of gifts.

9 Parking fee,

These are fees collected by the local government and are charged on motor vehicles by the
Uganda local government .For example recently, the taxi drivers were striking over 10000.shs to
be from them (daily monitor). This was in form of parking fees that they were supposed to pay
the city council authority.

10 Market dues

These are collected by the local government the market places /business places and are mainly
used to develop such places.

11 User fees,
These are fees collected by the local government as result of using some government owned
facilities as game parks and many tourist areas among others. They are mainly to develop those
places.

12 Agricultural revenue Tax

This the tax imposed on the value of produce realized by the farmer as income after deducting all
expenses and cost of production

13 Inheritance duty;

This is the tax imposed on inheritors who may be many or one. The greater the wealth inherited,
the higher the inheritance duty.

14 Death duty

This is levied on the property of the deceased. It is urged that a person cannot command property
rights beyond the term of his/her life which nature allow him / society her , and therefore, society
should take part of that property (inform of tax) when the other dies.

Recommendation

Recommendation on tax administration were that local authority should adopt a more pro-active
approach rather than a more reactive approach when collecting revenue so as to minimize
administrative and compliance costs, regular training program as should be instituted to equip the
staff with the necessary skills with regard to interpretation of tax laws.

Recommendation on tax compliance where that improvements should be made in the assessment
of tax payers , transparency, fairness and well stipulated guidelines should be followed by the
staff of URA , sensitization of tax payers regarding the importance of paying taxes , timely and
quality information should be availed to tax payers and also encourage feedback from the tax
payers . Therefore there is need for tax authority to improve in the tax administration methods
and policies of administering taxes if voluntary taxpayers compliance is to be strengthened.

Taxation in Uganda has also got many importances among which some are explained as
follows.

Helps to raise revenue used to finance both recurrent and development expenditure
within or outside the country.
 It also improves on the balance of payment position (B.O.P), this is done by imposing
high taxes on imports so to control their importation and reduce foreign exchange out
flow.

Taxation protects domestic/ local industries from foreign competition. This is done
by imposing heavy taxes to certain imports so as to be expensive and reduce their
demand. This in turn creates market for the local products.

It also helps to reduce income inequality; this can be through progressive tax system.
This is where the incomes of the rich people is reduced to greater percentage as compared
to that of the poor.

Taxation helps to control monopoly power. The government can impose either lump
sum or specific taxes on monopolist so as to control his profit level and reduce his power
in the market.

Checks on inflation, this done by imposing higher taxes on persons incomes so as to

reduce their disposable income and their purchasing power.

Taxation ensures steady economic growth, through provision of tax incentives to

potential investors. This enables them to expand their production scale and increase
output.

It is a form of forced savings. Through taxation government mobilize revenue from the
public and uses it t o establish various enterprises. It also encourages the public to
develop a saving culture as people have to save money and pay taxes.

To regulate use of economic resources so as to avoid quick resource depletion.

However, the tax system in Uganda is also experiencing some challenges as discussed below
The existence of a low taxable capacity. Due to low income levels and high levels of
unemployment in LDCS, most tax payers taxable capacity is low and this bring about less
revenue realized from taxation.
 The country lacks enough competent man power in carrying out the process of
taxation. That is, collection. This results into people paying less than what they are
supposed to pay.

Difficult to identify tax sources, this is because some people have various sources of
income which are not properly defined and in most case such sources go untaxed.

There is a high rate of tax evasion. Many people refuse to pay taxes mainly because of
the level of poverty and this reduces the revenue realized from taxes.

Tax avoidance. Many people exploit the loop holes involved in the tax system this can
be through the use of abusive language, fighting with the tax collectors all of which result
into low tax revenue realized in the country.

Political interference. Some politicians with the activities of tax authorities and they
sometimes forces them to reduce on the tax rate so as to increase their popularity. In this
way revenue collected from taxes tend to be low.

Existence of a large informal sector. Under this sector record keeping tend to be poor; it
is also characterized by limited capital all these result into low profits hence less revenue
through taxation.

Conflicting government policies / objectives. In some cases government comes up with

policies to promote investment through reduced tax rates and at the same time it requires
the tax authorities to raise more revenue. Thus making it difficult for the authorities to
compromise the conflicting authorities.

High rates of inflation. When assessing taxes, tax authorities assume all factors constant
but due to economic instabilities, prices change and as a result the countrys currency
looses value resulting into a reduction in real tax collected.

High level of political insecurity. This may scare away collectors in such parts of the
country and also reduces the level of economic activities thus reducing the tax revenue.

Rampant corruption and embezzlement of tax revenue by the tax officials. This implies
though people pay taxes, the corrupt official tend not to forward the exact amounts to the
offices instead they use the money collected to fulfill their personal interests this reduces
the tax revenue realized by the government.
 Narrow tax base, the sources of taxes in Uganda are limited because of limited
economic activities and the high level of tax exemption especially on investments. This
result into less revenue realized from taxation.

Poor infrastructures. This makes it difficult for the tax collectors to access remote areas
to carry out the activities involved in taxation and also makes some areas un taxed. This
has also resulted into low revenue inform of taxes to the government.

VI CONCLUSION

Over the last two decades, the government of Uganda has made tremendous improvements in its
tax system. However, it is clear that more work has to be done if Uganda is to increase its tax
revenues. Due to the low levels of development in Uganda, it will take a number of years before
a fully-fledged and operational tax system is set in place. Nevertheless, the government has to
continue adapting the tax system to meet the evolving needs of people and enterprises in Uganda.
One of the major challenges of tax reform in Uganda is to enlarge the tax bases that have been
eroded by the HIV/AIDS epidemic, the conflict in Northern Uganda, the growth of the informal
sector, and deficiencies in tax administrative capacities. This thesis concludes that the
government should focus tax policy on promoting equity, participation, and growth for all
sectors of the population. In particular, it is time for the

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