By Edward Kataaha
Milton Friedman, an American economist once quoted “There is nothing so
permanent as a temporary government program.” This amplifies the potential for temporary Government measures, if well implemented to leave a positive lasting impact on business growth and sustainability. A key focus the current situation we find ourselves in.
The Ugandan business landscape finds itself at crossroads. On one hand, proposals for tax increases loom large, threatening to squeeze already strained financial resources.
On the other hand, a crucial program offering relief the interest and penalty waiver under Section 40(d) of the Tax Procedures Code Act 2014 – expired at the end of 2023, further dampening the already bad situation.
In the 2023 tax amendments, inclusion of Section 40(d) of the Tax Procedures Code Act 2014 waiver offered great hope to many businesses that were struggling with a bloated and unrealistic tax ledger which many taxpayers failed to reconcile and settle.
This piece of legislation meant that taxpayers struggling with outstanding tax liabilities were presented with the opportunity to settle their principle tax arrears without the burden of accumulated interest and penalties.
This program, however, coincided with a major overhaul of the Uganda Revenue Authority’s (URA) tax ledger system, which unfortunately was rolled out in November 2023, reversing previous gains made in ledger reconciliation and thus significantly hampered the program’s
effectiveness.
The intended benefit of the program-encouraging businesses to clear their principle
tax arrears outstanding as at 30th June 2023, without the burden of interest and attendant penal charges – was unfortunately undermined by the very system it aimed to support.
The new tax ledger system presented a steep learning curve for many businesses. Numerous technical glitches, delays in implementation, inadequate lead time and user interface challenges created confusion and frustration with the tax ledger positions shifting in a haphazard manner almost daily.
Business owners, already grappling with the intricacies of tax compliance, found themselves
further burdened by a system that was supposed to streamline the process. This
ultimately limited the number of businesses who were able to take advantage of the
waiver program.
Now, with proposed tax increases on the horizon, Ugandan businesses are facing a
perfect storm of financial pressures. The additional burden of tax hikes will
undoubtedly strain cash flow and limit investment opportunities. Reinstating the
Section 40(d) waiver would provide much-needed relief in this critical time. The positive impact of the waiver program extends far beyond simply enabling businesses to settle outstanding taxes. It offers the following wider benefits:
1. Mitigating the Impact of Tax Increases: The proposed tax hikes will undeniably have a negative impact on businesses. The waiver program would act as a buffer, allowing businesses to use their resources for core operations and growth, instead of funneling them towards accumulated interest and penalties. This financial breathing room is critical for business stability, sustainability and even growth.
2. Promoting Tax Compliance: A well-implemented and effective waiver program can incentivize businesses to settle outstanding taxes and become compliant taxpayers. By offering this reprieve from penalties and interest, the program fosters trust and collaboration between businesses and the URA. This, in turn, leads to a more predictable and stable tax collection environment, benefiting both the government and businesses in the long run.
3. Stimulating Economic Growth: By providing this relief from accrued interest and penalties, the waiver program would empower businesses to invest and expand growing the tax base for URA tax collections. Increased investment leads to job creation, higher productivity, and ultimately, a more robust national economy. A thriving business sector fuels innovation, drives up consumer spending, and creates a positive economic ripple effect. We urge the URA and Ugandan government to consider the challenges faced by businesses last year and reinstate the Section 40(d) waiver program. Let’s work together to create a tax environment that fosters business growth and strengthens the Ugandan economy.
Edward Kataaha Is A business Head At Vertex
