{UAH} Formalising agriculture will widen tax base - A social Democratic View

Mrs. Doris Akol

Congratulation upon your elevation to URA the Commissioner General position that is indeed not a small fit. Thank you too, for the courage to seek advice on this very important issue.

We need a national debate.

Structural Bottlenecks

On the outset, let me state that privatised nations have a real problem with taxation. For that reason I will quickly mention the structural problem URA is faced with the government must handle expeditiously:

     I.            Excessive capital flight through private entities (Banks, Insurances, Telephone, TV and Construction units)

    II.            Lack of a National ID- every productive unit will have it's activities tagged on a special ID number showing residence, status, ownership, address etc

     III.            Lack of a National Data infrastructure network

     IV.            NSSF cover every able working adult to contribute to it ( will not discuss).

       V.            Zoning – with urban planning

Uganda is a very small economy and with a high number of banks mostly getting their profits from investing in government debentures – there is an enormous financial haemorrhage.  Uganda needs a National Commercial Bank, National Insurance company, National house and road Construction entity etc.

Once you have no national ID – the registration bureau will be at loss to track who is who in the private business world. Indeed URA can't find some tax payers yet with the national data infrastructure; banks, URA and NSSF will be tagging accounts holders with their national Ids number, which information will specifically be reflected at; URA, NSSF, Registration Bureau and UBOS.

The above brings us to another issue – of taxing farmers and how you will locate them without a national data infrastructure.

Lastly NSSF should cover the wider population so that your tax base increases as population also grows.

In Kampala for example any one can set-up a business any where – URA need to work with Town and Municipal councils  

Tax and production

Do we need agricultural production and tax expansion – if the answer is yes, then the first ideal strategy is to reorganise society and public investment. This argument is based a simple Keynesian theory. Even then why not increase domestic consumption and reduce the rural population to 40%.

The recent population census puts the adult population at approximately 15 million people on assumption that of the 7.3 million households visited by UBOS, has two adults each, which is just 43% adults of the entire population. Of the 15 million people, Kampala has 1.5 million making all urban dwellers in Uganda to be 6 million.

How many of the 6 million really spend their disposable income on commercial agro-produce?

I will put the figure, slightly above one million all over the country!

Recent data shows that about only 18% of Ugandans are urbanised – if were true, it has serious implications on taxation of the entire agricultural sector. You can only increase taxation if you know there is high demand and monetary dependence on such products.

This is not the case in Uganda farming world.

Majority Uganda population of which 82% live in villages is very big. This implies the largest Uganda population is self sustaining in regard to agro-produce consumption.

You can't develop agriculture with such society configuration and we know this as a fact from Industrial Europe and North America.  

First and foremost the government of Uganda would be stimulating the agricultural sector through public investment, which is not the case!

For instance there are no:

a.     Subsidies on inputs and output

b.     Export support is nil

c.      Domestic consumption is negligible (18%)

All the three are basically non-existing in Uganda hence there is basically nothing to tax! The receipt system has failed to take off implying farmers can't produce where they are sure of the market and return on their efforts. Eggs and chicken Madam Akol is talking about is highly consumed in urban regions. Then you can add cabbages, meat, tomatoes, pineapples etc.  Those crops too are commercially confined basically to Kampala and Juba markets. Wobulenzi is a good town to start from to study the above phenomenon.

So is the milk and beef business.

 It would not be very difficult to get data on egg, chicken, fresh produce, meat production and consumption outside Kampala, if URA did a sampling in; Jinja, Kabale, Arua, Soroti, Gulu, Mbale and Masaka.

The government is adamant with its privatisation stance and that is as far as Uganda can go with its agriculture taxation – it is a non starter. This will be killing off agriculture.  UK has 60 million people, if Ugandas 35 million were to consume at least 1/3 of UK total agricultural produce that will generate huge tax revenues.

So what is the problem?

Uganda government does not support agricultural produce export, and domestic consumption that too reduces taxation. If domestic consumption was high, there will be high returns on agriculture produce and increased consumption. Uganda government stopped lunches in schools. That was a huge loss of revenue to farmers. Hospital and medicare facilities no longer provide food to patients.  

The question then becomes, does Uganda have a viable agricultural sector?

The answer is no! What are the agricultural products are we talking about? Uganda is not exporting beef or rather beef is still produced in a very tradition way. Lira beef factory was started to export beef for world war soldiers. It continued beef production into the 70s almost the entire production going to the army. Cassava was turned into high protein biscuits and starch for the cloth industry – that too is dead. Today the army eats beans from January to December!

For almost 5 years bean prices have stagnated at 2000 per kilo. Milk production is still very low. Seeds in Uganda besides domestic consumption, now used in animal feed production are still very low.  Fruit production unless there is ingenuity in export markets will face the same fate as other sectors. Majority super markets are located in Kampala.

The so called cash crops production has but almost ceased to exist. Vanilla is almost extinct. Cocoa might face resurgence due to processing but without government support that too will hit a dead end. Denmark as a country markets it milk powered and butter – so is use which bring here tins packed with USA AID ghee in huge tins.

How much food stuff has Uganda packaged and exported to Somalia, Sudan and Central African Republic as food aid – nothing.

The government strategy appears let every rural farmers contribute may be 300.000 Uganda shillings on assumption that that will force the farmers into agriculture. I must say from my own experience as a person growing in farming that that strategy is dead.  Already we have over production of bananas in western Uganda. The same will happen with milk and other produce unless the government get wiser!

Incentives and Public Investment

Uganda government has to give farmers incentives and get deeply involved into the four agricultural production processes and then tax those namely:

a.     Production (cooperatives) of key agro-produce for domestic and external market

b.     Processing

c.      Marketing (foods and beverages)

d.     Transportation (Transocean)

With such agriculture configuration farmers will produce knowing very well they can sell and in return earn, however small. 

Widening the tax base

But why tax agriculture when there are so many areas where if the state was involved in public investment it would have a wider tax base? Here below I will off only seven sectors where URA will be making more that 30 trillion in a year if the government was involved in public investments! When state invests the savings go up.

i.                    Estates Development

      If the government was involved in providing housing provision to the population it would be earning sizeable revenue on dwellings. If for example just 7 million people had houses from the state paying a tax of just 500'000 a year on every dwelling, URA will be earning in a region of 3.5 trillion. This is not to mention other taxes on building inputs. NHCC was sold to Libyans

ii.                  Internet – optical fibre 1.500.000.000.000

If out of the 6 million urban dwellers only 2.500.000 million were connected to national fibre network – URA will be collecting 2.5 trillion or more – Kampala is now covered with MTN, Google, Airtel etc., yet we have Mpoma and Arua satellite can provide high speed internet to all homes in Kampala, Jinja , Mukono, Masaka etc. The government can also use its electricity grid network. Moreover

 

iii.                Umeme has slightly 650000 consumer (10.769)

If the state was involved in provision of organized human settlements and 7 households were basically connected to the grid – you can use the data you have from umeme contribution – the contribution will be 11 times bigger than what they are paying now. UEB was dismantled.

 

iii.       Public Transport -  Post buses, URC  passenger wagons

If post buses are working perfectly, it implies public transport if it existed and transporting let say 3 million people a year this could be a huge revenue base for URA – UTC was disbanded and URC is now run by RVR whatever that means.

iv.               Mivumba and the Cotton sector

In Ghana and Ethiopia – cloth making is a big business. The state would have support Owori, Phonexi and others involved into the sector – this is a huge revenue base – cloth making factories were sold to war heroes.

v.                 Timber sector –

I can't understand why Kalangala forests were cut down for palm oil. For every tree in Kalangala the state would probably 4500 shs per cubic meter – how many trees were indiscriminately cut down? Let us expand the forest resources and increase tax revenues on both timber and finished products which also need to meet international standards to fit into the market.

vi.               Media sector :

Star Tv, Zuku, Azam, DsTV all their provision are end revenue earners.  With optical fibre network or Mpoma and national fibre network these provision would be provided. Interestingly the government in one statement abolished the TV licence – but Ugandans pay Star Tv, Zuku, Azam, DsTV in a region of 10000 – 50000 a month! If the state provide the provision at a flat fee of let say 30000 to 1.5 million Ugandans you be getting 5 trillion shillings. Remember young as well as old watch TV.

vii.             Telephony

UTL could do the above using their network- Unfortunately they have totally dismantled Uganda's copperwire network – implying Uganda is almost 30 year behind its neighbours with landline telephone network a very vital infrastructure in national communication

URA difficulties are squarely problem of the government starts and has to resolve.

Any mention of roping in the agricultural sector into the tax bracket will definitely generate very emotional arguments for, but mostly against, targeting income earned from farming.

But I would like to inform the public that income earned from the agricultural activities is not exempted from taxation except when it is derived from agro-processing.

The agricultural sector in Uganda is known to be mainly subsistence in nature, but it nevertheless plays a big role in Uganda's economy.

The Uganda Census of Agriculture (UCA) 2008/09 estimated that the number of agricultural households stood at 3.95 million, with over 80 per cent of the total population earning a living off the sector.

It is further estimated that 85 per cent of Uganda's population live in rural areas, 73.3 per cent of whom are engaged in subsistence agriculture and hunter-gathering. This suggests that perhaps 6.7 per cent of the rural population is engaged in commercial activities including commercial agriculture.

We have seen significant evidence that the number of people engaged in commercial farming activity like poultry farming, fish farming, traditional and non-traditional cash crop farming is increasing. Using the procurement of both main and emerging cash crops as a proxy indicator, it is apparent that the number of people earning income from agriculture is increasing.

However, despite the increment, there is no evidence that these inspirational farmers are formalised in any manner that enables them to register for and pay taxes.

This scenario is replicated in many other segments of the informal sector such as the artisans, traders, commission agents in the real estate and motor vehicle sectors, timber dealers, to mention a few. And it creates a system of manifest inequity between these income-earners who are not paying any taxes and the others that duly pay taxes on their incomes.

For instance, a teacher on the government payroll who earns a gross annual salary of Shs 3.24m, an average of Shs 270,000 a month, pays monthly PAYE tax of Shs 3,500. Annually, this teacher will have paid tax of Shs 42,000. Compare this teacher to a poultry farmer who has 200 layers.

Assuming this farmer collects approximately 150 eggs daily, which is five trays a day; at a cost of Shs 7,500 each, these fetch the owner Shs 37,500 a day –or Shs 12.6m a year.

Even if we took into consideration the vagaries that come with farming and leave the poultry farmer with Shs 10m annual income; and if the farmer were to pay presumptive taxes at the lowest presumptive tax band, this farmer is obliged to make a tax payment of Shs 300,000 a year. It is evident that the farmer, by not paying tax of Shs 300,000, is a burden to the teacher who pays an annual tax of Shs 42,000 and yet their income levels are so dissimilar. This is the inequity that comes as a result of an informal sector.

Therefore, it is imperative that the agricultural sector, which is a large component of the informal sector, be brought into the tax net. Players in this sector are among the beneficiaries of the infrastructure and public services that are provided using taxpayers' funds and yet they are not contributing their fair share.

Fellow citizens, the expansion of the tax base is in a sector right next-door and is indeed all around you. There is income being earned all around you that should attract tax. Whoever is earning this income and not paying tax is unduly breaking the back of the teacher, the nurse, doctor and other civil servants.

We do not know all the answers but are calling upon you to share ideas with us on how we can best support each other and liberate our country out of dependence. URA is available to support our existing and potential clients, especially those in the informal sector, to comply with tax laws.

If you have any ideas, please visit our service centres across the country or call; 0800117000 (toll free), 0417442097, 0417442054 or 0417442049. You can also email us on: in...@ura.go.ug. We appreciate your support.

da...@ura.go.ug

_____________________________

Bwanika Nakyesawa Luwero

--
UAH forum is devoted to matters of interest to Ugandans. Individuals are responsible for whatever they post on this forum.To unsubscribe from this group, send email to: ugandans-at-heart+unsubscribe@googlegroups.com or Abbey Semuwemba at: abbeysemuwemba@gmail.com.