The media has observed that Uganda’s revenue collection has been adversely affected as the economic activities that support the strongholds have shrunk. The manufacturing, wholesale and retail sectors have under performed, failing to bring forth the desired fruits.
According to the Revenue Performance Report for the period July 2016 to June 2017, the economy did not generate enough revenue due to low demand for private sector credit, contributing to the cumulative revenue loss of nearly Shs460 billion.
“During the FY 2016/17, the lower demand for private sector credit affected trade volumes especially in manufacturing, whole sale and retail and construction sectors which are the main revenue generators both for domestic and international trade taxes,” reads the revenue performance report.
Uganda Revenue Authority (URA) Commissioner General, Ms Doris Akol, last week said most businesses depend on credit to operate and pay taxes. A reduction in private sector credit affected their profitability leading to the shortfall of Shs197 billion in corporation tax.
Constrained production of goods and services also took a toll on the already sluggish economy, further impacting key investment decisions in economic sectors such as manufacturing plus wholesale and retail sector.
“The constrained aggregate demand in the economy affected investment decisions mainly in the wholesale/retail and manufacturing sectors. Many traders decided to warehouse goods and/or re-export ex-warehoused goods which further affected the customs revenue.”
For example, re-exported goods registered a growth of 11 per cent during the FY 2016/17 compared to a decline of nearly four per cent during the FY 2015/16. Goods are mainly re-exported to Kenya and Rwanda.
The constrained demand led to cash flow challenges which impacted revenue collection especially from withholding tax , Pay As You Earn and Value Added Tax. For instance, a number of taxpayers filed returns but made no payments during the FY 2016/17.
Aggregate demand is a measurement of the sum of all final goods and services produced in an economy. It tells the quantity of goods and services demanded in an economy at a given price level.
From July 2016 to March 2017, the economic environment was tough, characterised by; economic slowdown due to prolonged drought, constrained aggregate demand and global uncertainty leading to a revision of GDP growth rate to 4.5 per cent by Bank of Uganda during the FY 2016/17 compared to the projected 5 per cent at the beginning of the financial year.
“The financial year 2017/18 target is a stretch target based on some assumptions some of which have already not materialised,” Ms Akol said.