Remarks by Mr Deo Kayemba, Executive Board Chairman, the Uganda Manufacturers Association (UMA) at the Conference on Reshaping the tax system to support the Financial Sector Development Strategy (FSDS) Kampala, Uganda, 14th–15th December 2022 The two-day conference was convened by Uganda's Ministry of Finance, Planning and Economic Development, and co-hosted by ICTD's DIGITAX Research Programme and TaxDev.

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UMA PROPOSALS TO ENHANCE DOMESTIC REVENUE MOBILISATION
UMA concedes that with the institution of proper dialogue and benevolent tax policy and
strategies with key stakeholders, a huge interest in the proposed initiatives to improve
domestic revenues and ensure additional revenue gets spent on improving social sector
spending and public service delivery, will in turn improve willingness to pay taxes among
the citizens in the Uganda.
We have learned from a number of economies that the cheapest and most lucrative means to
mobilise revenue is by way of deliberate but systematic reduction in the cash economy, which
forms the basis of our proposals.
We know for certain that the government departments responsible for collection of and
planning for revenues tend to set targets which profusely focus on the small tax base that
comprises mostly manufacturing and services entities that are already compliant. These
constitute only 33% of all the productive sectors [Agriculture, Services and Industry], while
the rest 67% remains informal and untapped in terms tax contributions, despite their
contribution to the GDP. This explains the discrepancy between the tax contribution to the
GDP.
To create a sustainable cashless economy, there is need for deliberate government policy by
way of;
a) Reducing charges for operators and on mobile money transactions
b) Cap the transaction rates banks and on mobile money
c) Reduce cash for operations like petrol stations
d) Eliminate VAT registration with cash
e) Registration on the mobile money accounting system for start-ups
f) Regulate rates of online platforms to protect subscribers
g) All phone and bank accounting to be attached to National Identity cards
h) Eliminate and or at least limit access to large denominations
Upon this background, UMA proposes the following as key in improving tax base and taxable
capacity in Uganda.
1. Reward and penalty approach.
While government focuses on penalty for non-compliance, there is no feasible reward for
compliance. What transpires is new tax measures focusing on the compliant ones.
Proposal: TPD should institute a schedule that looks at incentivising compliance as is
done by ERA to for power consumption.
2. Incentivise users/subscribers to online services platforms.
With online systems, tracking is easier since one presents identification credentials prior to
registration. This applies to boda bodas through such platforms like safe boda, uber, taxify
etc.
Proposal: Such incentives should involve reduction in premium for third party
insurance, since third party claims are easier to claim.
3. PAYE threshold adjustment.
ANNEX A

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PAYE contributes to about 18% of the total tax heads contribution. Despite this being at a
low, the impact on demand and disposable income is great.
Proposal: In a country with low levels of saving and investment culture, there is need
to raise the PAYE threshold to 500,000/=, while at the same time reducing the rate
from 30% to 20% and the margin 10% deposited on the respective workers social
security and transferred as investment saving with UDB. This will increase disposable
macro – incomes and revenue for the economy.
4. Extension of Bond Facility to Locally Manufactured Intermediary and Finished Goods
to cause parity with Imported Intermediary and Finished Goods.
Current Scenario:
A primary manufacturer in Uganda goes through the steps below:
a) Imports and bonds raw materials,
b) ex-warehouses the raw materials by paying import taxes (duty, levies and
VAT),
c) sells to the secondary manufacturers tax paid goods and sells tax paid goods
(finished and intermediary) to the secondary manufacturers (local and export)
for intermediary goods,
d) sells to traders or end-user customers (local and export) for finished goods
e) claims for a refund of VAT or duty draw back for the exported material
f) undergoes rigorous URA audit for the refund
g) receives refund, on average, after 8 months
A trader imports and trades in either similar intermediary or finished goods goes through the
steps below:
a) Imports and bonds the intermediary or finished good that a primary
manufacturer produces
b) ex-warehouses the intermediary of finished good either from bond to bond on
sale to the secondary manufacturer or finished imported goods sold to another
bond for a trader, exported or sell tax paid imported finished goods to end-
user. In case of sell from bond to bond as well as export, there is no exposure
to payment of taxes as is the case with a primary manufacturer.
c) there is no claim of either duty draw back or a refund of VAT as there was no
exposure to pay duties and VAT on export.
The above creates an unlevelled playing field making the local primary and secondary
manufacturer disadvantaged on account of payment of taxes at the start of
manufacturing process but in favour of the importing trader who pays taxes at the
point of sale of their goods.
Proposal: There is need for creating a levelled ground for local manufacturer to bond
the entire manufacturing process wherein manufacturers shall only pay their import
taxes and levies at the point of sale of their finished goods.
Benefits
i. Reduces the refund process
ii. Allows URA to acquaint themselves with the most important tool for
combating tax evasion, that is, the scientific evaluation of tax of input-output
ratio

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iii. Makes tax auditing of the manufacturing activities aligned to the production
process
iv. Eases manufacturing working capital
v. Creates a levelled playing ground for the local manufacturer as compared with
the trader of the same materials the manufacturer is producing.
vi. Makes Uganda competitive for exports as borrowing interest on account
working capital tied in refunds is avoided.
5. Ensure tax filing for everyone through an integrated finance system.
Require all online transactions to be attached to a TIN for URA to get provisional returns
from every individual, to which they accept or reject. Increase tax awareness among
individuals and businesses. Creates the use of professional services and increases
government income/revenue.