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Govt can make money without over taxation

Finance minister Matia Kasaija

Finance minister Matia Kasaija

As the government of Uganda proceeds to gear its taxation policy too high for its own people by suggesting a string of bills such as one to levy a withholding tax on surrogate mothers, and another to impose a value-added tax on donations of goods and services provided by employers to their workers.

Measures which are likely to dampen morale in an already challenging local work environment. Then following that up with granting tax waivers against the counsel of the auditor general signalling that the establishment isn’t only high on taxes but will not cut down on its expenditure.

Worse still, it communicates a lack of knowledge by the regime on alternative ways to raise revenue to fund their existence. This has caused commotion among the business, and service sectors which have resorted to finger-pointing, accusing the government of favouring foreign investors and have threatened a two-month strike if the latest tax method — Electronic Fiscal Receipting and Invoicing Solution [EFRIS], isn’t revised.

Unbeknownst to the government, there are alternative ways it can ramp up revenue without having to put its foot on the neck of its citizenry and choke the life out of their livelihoods. Nonetheless, it would involve satisfactorily using government’s personnel, and meticulous strategy and planning.

The alternatives to over-taxation are:

Bulking up gold holdings

Gold is Uganda’s biggest export earning the country more than $5.5 billion [Shs 20.6 trillion] in the last five years translating to 111.3 tonnes. Even as this gold belongs to the private sector, the government could salvage the opportunity of buying it cheaply in raw form, then have it refined in any one of the six refineries in Uganda; and, store it as bullion for a rainy day.

Gold is the only other thing the IMF recognises as an alternative to currency. It is very liquid, and its value on the world market has gone up by 84 percent in the last decade as per Nasdaq.

The yellow metal is a hedge against hyperinflation and recessions since countries can sell it to get revenue like Turkey and Uzbekistan did during the pandemic; because, the value of the metal goes up during economic downturns.  

Uganda has been indicted by UN security council reports: S/2021/560 and S/2017/672 for illicit gold trade in the DR Congo. Nevertheless, it’s shocking that not a smidgen of the metal has ended up in the country’s vault even when the International Court of Justice [ICJ] charged Uganda an indemnity of $325 million [Shs 1.2 trillion] to DR Congo for the looting of gold and other minerals.

The World Gold Council doesn’t capture any data of Uganda’s gold reserves. Bank of Uganda declined to comment on the country’s gold holdings for this article, citing security reasons.

On the contrary, other regional central banks provide this information. For instance, Kenya has a gold reserve of 0.02 tonnes, Burundi 0.03 tonnes, Malawi 0.04 tons. It’s evident that sovereignly, Sub-Saharan Africa doesn’t hold gold in high regard.

Petroleum Investment Fund

Set up as a sovereign fund with the commission to invest oil revenue for profit, the entity under the administration of the ministry of Finance, Planning, and Economic Development lies lifeless waiting for oil money to trickle in. In a 2021 Government of Uganda document on the petroleum fund, it is stated that as of 31st December 2021, the petroleum fund was valued at Shs 87.1 billion [$23.2 million]. If managed well, the fund can start to be productive before oil money flows into it.

Rwanda, for example, runs a sovereign fund — Agaciro Development Fund since August 2012 that was valued in the region of $250 million [Shs 937.6 billion] at the end of 2021. The fund invests in Rwanda’s local equities, fixed income securities and term deposits even with the absence of a mineral like oil; but, with the acknowledgement of the principle of investment and productivity.

If competently managed, Uganda’s petroleum fund can invest in equities, real estate, venture capital, private equity, fixed income securities in global markets which investments would give Uganda a much-needed public relations boost, and lure credible foreign investors to the country by first directly investing in their business on the financial markets, while earning the government dividends which would supplement revenue from taxes.

This investment strategy would go a long way in forming credible trade partnerships for Uganda. Angola has done it that way; Uganda can at least start on it.

Uganda Property Holdings Limited [UPHL]

Established by a cabinet decision in 1998 to effectively manage, protect and improve government properties belonging to Coffee Marketing Board [CMB], Lint Marketing Board [LMB], and Transocean Uganda Limited; the public enterprise’s barren operations have been kept mum because some of its properties aren’t in its control.

A 2010 parliamentary [COSASE] report forwarded by the eighth parliament highlights irregularities in the management of most government properties as they lie in waste, are underutilized, and rented off cheaply.

For instance, the parliamentary report affirms that the CMB building was then rented out at Shs 56 million [$14,930] for five years and “much of the building is vacant and requires refurbishment” the report pointed out.

UPHL’s holdings were marred by rent arrears, undeclared dividends: the company operated between 1998 and 2010 without declaring any dividends.

A look at the public enterprise’s website is unavailing because it has no meaningful information. One of the pages for space for rent in Mombasa is written in Latin with gibberish information translated into English to mean, “It is important to take care of the patient, to be followed by the patient, but it will happen at such a time that there is a lot of work and pain...” This exudes negligence.

UPHL has got properties under its management in Mombasa, London and Uganda which would have by now been extended to major cities in China, India, Japan and the European Union where Ugandans transact business on a large scale.

The 2010 COSASE report valued the properties in Mombasa at Kshs 1.4 billion [$10.7 million, or Shs 40.8 billion], and the London estate at £3.2 million [Shs 15 billion] with the Mombasa properties bringing in a monthly rent of Kshs 9.9 million [Shs 280.6 million], and the London properties a monthly rent of £12,000 [Shs 56.3 million].

If the government efficiently managed and expanded government real estate properties in Uganda and abroad, UPHL would be a major source of foreign revenue.

Instead, the government chooses to focus its efforts on borrowing, over-taxation, and foreign aid. No country has developed by pursuing a cocktail of these strategies. Dr Fred Muhumuza, a senior economist, lecturer and policy research expert, had this to say about government investing in gold, the petroleum fund, and UPHL as revenue streams.

“There aren’t many countries with gold ... Uganda doesn’t have gold reserves that are productive. The gold we have is coming from other countries; but also, it’s owned by the private sector “the only way you would get money from gold is by taxing the companies involved in gold, and we [Uganda] aren’t taxing them much”.

“The government was trying to set up a mining company to invest in gold and other minerals, but the venture was diverted and overshadowed by interest in oil”.

In connection with the petroleum fund, he said, “We had raised a substantial amount of money, but it was drawn out ...Quite often, you don’t touch the principal, you invest it domestically or abroad, and only use the interest. Right now, there’s no money in the petroleum fund, our strategy depleted it”.

On the management of UPHL, Muhumuza remarked: “UPHL has had some of its assets depleted, some mismanaged; so, it is not giving us a thrust. “It would be a viable investment, but it goes with governance. If government isn’t ready to manage it [UPHL] with a profit motive, then we’re not going to get money out of it”.

In the existing circumstances, government has an array of alternatives to flip for substantial profit. Whether it considers them, or, continues in its antiquated money searching ways awaits to be seen.

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Comments

+1 #1 WADADA rogers 2024-05-16 14:27
Ugandans are not opposed to paying taxes but the problem is that the money collected is either stolen or given to the rich as bail outs
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