Limited uptake among taxpayers, accounting hurdles and low impact on revenue collections are hampering Uganda’s tax amnesty programme now in its second year.
The country’s tax amnesty initially expired on December 31, 2023 but was pushed to December 31 this year after a strike by Kampala City traders over implementation of the Electronic Fiscal Receipting and Invoicing System (EFRIS) for filing Value Added Tax (VAT) returns.
Under the programme, those with outstanding tax bills can seek relief for a portion of their obligations.
Accounting glitches faced by taxpayers pose one of the biggest threats to the programme.
According to Trevor Lukanga, associate director at PWC Uganda, the tax amnesty was extended partly because of the poor response registered last year. But the underlying tax ledger reconciliation problems have not gone away. For example, a taxpayer might have a total tax liability of Ush16 million ($4,276) inclusive of interest and penalties.
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The principal tax bill might be Ush10 million ($2,672). They might choose to take up the tax amnesty and pay the Ush10 million ($2,672) while the balance in interest and penalties is waived.
However, he says, a payer will check their tax ledger later on and find an outstanding balance of Ush2 million ($535)-3 million ($802). It could be that Uganda Revenue Authority (URA) uses the payment of principal tax bills to clear outstanding balances in certain tax heads instead of the overall tax bill arrived at during reconciliation.
“Such a situation does not make sense, and we intend to write to URA seeking clarity on this matter. Out of 200 clients on our register, less than half have actually taken up the tax amnesty offer,” he adds.
“We have encouraged our clients to take up the tax amnesty offer because it might help avoid certain financial disasters that lie ahead. Clients who undergo tax compliance reviews done by URA auditors every three months are less likely to see benefits in a tax amnesty, but those who undergo URA tax audits every three years might realise more value in the tax amnesty window due to lower compliance levels.
We have experienced technical issues in the processing of pursuing tax amnesty benefits for our clients but those hurdles have slightly reduced this year,” said Muhammad Sempijja, Tax Partner at Ernest and Young Uganda.
Policy justification for the tax amnesty programme is anchored on the fallout brought by Covid-19 lockdowns on several sectors; a scenario that has left many businesses still struggling almost two years later.
Around 1,000 businesses were forced to shut down during the lockdown while 600,000 jobs were lost in the Kampala City Metropolitan area during the first three months of the Covid-19.
The value of restructured loans in Uganda’s banking industry arising from the lockdown disruptions amounted to Ush7.7 trillion ($2.06 billion) by the end of 2020, Bank of Uganda (BoU) data shows.
“It is a good initiative, but we are yet to find out how many of our members have benefitted from it. It may help increase liquidity in the economy and stimulate demand in several sectors. We are still carrying out sensitisation among our members in order to help most of them benefit from the tax amnesty,” observed Thaddeus Musoke chairman of Kampala City Traders Association.
The total number of taxpayers grew from 2,618,008 in financial year 2021/22 to 3,500,294 in financial year 2022/23.
