MARK RUHINDI
I think it was lawyer Sarah Bireete who once proposed ‘cow tax’ in a series of tweets. I am also aware of Humphrey Nzeyi and his UMA colleagues’ frustrations with URA’s continued failure to widen the tax base and instead opting to get more aggressive with the already overly stretched tax payers in their net and so today I have decided to write about Sarah Bireete’s ‘cow tax’.
Obviously I could tell she’s not well versed with taxation and most responses to her tweets gave me the same impression about the responders, one which caught my attention was that of Minister Frank Tumwebaze who if i remember correctly, argued that introducing such a tax would be a hindrance to farmers’ in multiplying their herds or something like that.
In this opinion, I would like to address URA’s failure to tax wealthy farmers and it’s insistence on pulling ropes with owners of kiosks and boda bodas in Kampala when the actual profitable commercial ventures are in Kiruhura, Butuku and Sembabule. So to answer Sarah Bireete, there’s in fact ‘cow tax’, URA has simply not attempted to collect.
In the context of Uganda, “widening the tax base” refers to the government’s efforts to increase the number of individuals and entities that are subject to taxation. It involves expanding the scope of taxable entities, such as individuals, businesses, and organizations, to ensure a broader participation in the tax system.
Uganda, like many other developing countries, faces challenges in generating sufficient revenue for its public expenditure needs. One of the ways to address this issue is by widening the tax base. Currently, a significant portion of the population, particularly in the informal sector, remains outside the tax net, leading to a narrow tax base and excessive reliance on a limited number of taxpayers.
To widen the tax base, developing countries’ governments employ several strategies such as:
Formalizing the informal sector:
Many individuals and businesses operate in the informal sector, evading taxation. The government aims to bring these entities into the formal economy, encouraging them to register their businesses and comply with tax obligations. I have in the past advised owners of tiny enterprises to stick to sole proprietorship or partnerships as business vehicles until it becomes absolutely necessary to incorporate, in which case those businesses can be sold to corporations in consideration for equity.
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Trading through companies is much more technical and with recent increased enforcement from the regulators, this means entities can no-longer get away with non-compliance as has been the case, and yet tiny businesses can’t absorb the steep compliance costs (both with URA and URSB).
Strengthening tax administration:
Improving tax administration capabilities can help identify potential taxpayers such as wealthy ranchers who are currently not complying with tax laws. This involves enhancing the capacity of tax authorities to identify, register, and track taxpayers accurately and this is what URA needs to concern itself with when it comes to all wealthy farmers.
The others are;
Simplifying tax processes and reducing bureaucratic hurdles to encourage compliance. Simplified tax systems make it easier for individuals and businesses to understand and fulfill their tax obligations.
Introducing reforms, such as adjusting tax rates, expanding the tax base through the inclusion of new sectors or industries, and eliminating tax exemptions or loopholes, can help capture additional taxpayers.
And finally, enhancing taxpayer education and awareness, educating taxpayers about the benefits of taxation and the consequences of non-compliance can foster a culture of tax compliance. It is crucial to raise awareness among individuals and businesses about their rights and responsibilities in the tax system. For some time now, I have taken the citizen initiative to do just this through this blog.
By successfully widening the tax base, the Ugandan government will be able to increase revenue collection, reduce dependence on a small taxpayer pool, and create a fairer and more equitable tax system.
Is cattle ranching trading activity?
Under the Income tax Act, the law levies income tax, charged for each year of income and the same is imposed on every person who has chargeable income for the year of income. The law however taxes businesses and not one off transactions. i.e trade activity or an adventure in the nature of a trade. Tax law defines what a business is and this alludes to any activity or adventure in the nature of trade(repetitive activities, formalisation, volume of activities, use of business vehicles etc) amounts to doing business and the presence of one of those tests suffices.
Cattle ranching activities are trade activities with a revenue side to those trade activities. The farmer may conduct those activities either as an individual or a non-individual and so wealthy commercial farmers like the President and Minister Frank Tumwebaze derive income just like any other business in Kampala. They are under the obligation to file a return and account for tax whether or not those ventures are registered. Individual traders who are not trading through business vehicles like companies are taxed as sole traders whether or not they have registered trade names.
I was reading certain case law recently and evidence presented to the court in that case indicated some farmers you and I have never heard of owning up to 9,000 heads of cattle. It is sacrilege and quite absurd that such wealthy Ugandans pay no income tax at all on their farming activities and a Kampala based office secretary’s UGX 500,000/ salary is taxed. If URA can not go after individual traders because they’re not running their activities through companies, and are therefore not on the tax register, then what if we all decided to trade as unregistered sole traders to defeat tax obligations? The law allows URA the mandate to forcefully register such tax payers and so perhaps URA should finally gather the courage to go after the actual persons supposed to be paying tax!
The writer is a tax lawyer and management consultant.
Email; mr@markruhindi.com
Twitter; @MarkRuhindi
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