Government will have to look to alternative means of raising revenue after the Uganda Revenue Authority missed its revenue collection target by Shs457 billion due to slow economic growth and low import volumes, which impacted aggregate demand.
The slowed aggregate demand affected investment decisions in the wholesale/retail and manufacturing sectors. Many traders preferred to keep goods in warehouses or to re-export warehoused goods, which further affected customs revenue.
Ms Doris Akol, the Commissioner General URA, told journalists earlier today that net revenues collected in the financial year 2016/2017 totalled to Shs12.7 trillion against a target of Shs13.1 trillion they were tasked to collected “based on a set of macroeconomic assumptions.”
“The revenue collections registered a growth of 13.26% compared to the same period last financial year. In real terms, a total of Shs1.4 trillion was the additional revenue to the treasury compared to the past financial year,” Ms Akol said.
In the first nine months of FY2016/17, URA collected net revenues of Shs9.2 trillion against a target of Shs9.4 trillion. The assumptions made at the start of the financial year, according to Ms Akol, were that GDP would expand by 5%.
The Central Bank, however, twice revised the growth figure to 4.5% which it later said may also not be realised. The economy, according to current projections, grew by 3.9%.
According to Ms Akol, overall net revenue collections have averaged a 16.61% growth in the three past fiscal years. The GDP to tax ratio increased from 12.3% in financial year 2014/2015 to 14% in 2016/17, a growth of 0.70%.
Ms Akol said that the slow economic growth of 3.9% in 2016/17 against the earlier projected 5% led to a revenue loss of Shs236 bn.
“It shall be noted that the larger percentage of the revenue shortfall (82%) was contributed by customs. Most of the top import yielding items registered a decline in volumes during FY 2016/17,” she said.
Lower growth in private sector credit
Ms Akol said that the lower demand for private sector credit had affected trade volumes, especially in the manufacturing, wholesale & retail, and construction sectors, which are the main revenue generators both for domestic taxes and international trade taxes.
Import tax had been initially expected to grow at 9.1% but averaged 7.1% at the close of the financial year.
“Since most of the companies and business depend on credit to conduct businesses and pay taxes, reduction in private sector credit affected their profitability leading to the shortfall of Shs197 bn in corporation tax.”
The depressed aggregate demand also led to cash flow challenges which impacted withholding tax, PAYE and VAT. For instance, a number of taxpayers filed returns but made no payments during the financial year.
The tax collector, however, made strides in recoveries from the debt collection unit, collecting up to Shs80 bn against the earlier target of Shs17 bn.