By Wanambwa M. Rogers
I was talking to a Chinese “yinvestor” read investor whom I found trading merchandize in Kikubo and we got talking about taxes. My interest was on how he, a foreigner feels about our taxation system compared to his motherland’s. His words continue to haunt me to date and that will be the basis of this article.
I wrote about how to start a company on this very blog sometime back but didn’t go into details of the aftermath. What really happens after you’ve started it? Consider for example, the fact that Uganda is said to be the most Entrepreneurial country in the world. Good news, right? But again, statistics show that in the same country, the rate of business failure is so high that over 80% of business start-ups do not see the second year. I can attest to this since i started one last year that collapsed before this year begun. News for another day, but back to the topic.
I’ll use Uganda, where I currently live as point of reference for most of this article’s taxation figures.
A car dealer, Mr. Kizito Muzamiru(not real name), has to pay 75% of the price of a second hand car(read one that’s over 10years old), add customs duty tax, a few bribes, aka ‘kitu kidogo‘ to that as he transports the vehicle to Kampala where his dealership is based. If the car was $2000, or Ugshs7,400,000, 75% of this is $1,500(Ugshs5,550,000). Add to this another $300(Ugshs1,110,000) in other costs and the car has costed him $3800(Ugshs14,060,000) to reach his dealership. He’ll then sell this car to a customer at Ugshs18,000,000(aprox. $4865). This price is 243% more than the price of the same condition vehicle in the country they bought it from(probably Japan, which is where most of the imported cars in Uganda come from according to the Uganda Revenue Authority). The reason for such a tax is purportedly to deter people from buying old vehicles which emit a lot of gases(by the way, of recent, an Environment tax wax added to the list of taxes on said vehicles). New model vehicles are generally more expensive and although they attract significantly low taxes or even none, the cost of importing from is just too great to bother. This leaves no other option but the older models. Included within the taxes that Mr. Kizito has to pay are customs duty, excise duty, licenses, rates, transport fees, border charges, bond permits, among others.You’ll find that this elaborate example is the case for most import businesses around African countries and not just Uganda alone.
Let’s look at local businesses that do not involve international trade.
A young single mother, Ms. Atim Joan(not real name) decides to open shop in one of the Arcades around town. She is convinced by friend Molly that where she(Molly) works is the best place to work. Joan has gathered some money and her friends and family have been generous and have contributed to her capital. She’s pumped and ready to work. On reaching, the Arcade management(the owners almost never appear for collection of rent) tells her that she’s to pay Ugshs2,500,000(approx. $676) every month and that first payment is three(3) months upfront. That is Ugshs7,500,000 or $2027. She pays and goes to buy stock. Remember the imported stock from the previous paragraph that is heavily taxed? Yeah, that’s what she buys and stocks up her shop. Now, because the merchandize is expensively bought, her retail price is high too, what with high rent to pay too. It doesn’t stop there, Kampala Capital City Authority(KCCA) more taxes to impose on her too. There are what are called Presumptive taxes, and those of Kampala are higher, there’s license payments, VAT on all produced goods you sell and so on. In order to recuperate her monies spent on purchase and taxes, she has to increase prices.
Just these two examples have shown over 10 types of taxes in different categories but charged on two traders!
So why are there that many taxes?
Among other reasons, the major reasons are Debt repayment and raising government funds for it’s efficient running. For African countries for the last decades, it has been majorly for Debt repayment.
Where do these debts come from?
They come from the World Bank, the International Monetary Fund, other multinational financial institutions, wealthier countries like Japan, China, the US, China, the UK and others. I have talked about this debt especially of Uganda already on this blog.
However, to put it into perspective, as of last financial year, Uganda’s debt was to take it 99years to repay it. That’s a whole century ahead! That’s not all, considering our National Budget is just over 50% by debt(Debt Financing), this means the debt is increasing as we speak. The same situation is happening in other countries.
Does the revenue collected from taxes actually go to repayment of debt?
Unfortunately, this is not really the case considering most of the collected taxes are embezzled. In Uganda for example, over a trillion shillings is embezzled yearly. A study showed that Ugandans had over $50bn in offshore accounts and accounts in foreign countries. Remember, Uganda’s GDP is just $28bn.
The taxes do not really help anyone but they do make doing business in Uganda extremely difficult. According to the 2019 World Bank business report on ‘Ease of doing business,’ Uganda ranked at no. 116, after having jumped ten positions from no. 126 in the previous year. However, this is still not a good position and investors cannot be attracted to countries like ours with high instability and high taxes too.
Even the nationals themselves are in a conundrum(I already told you 80% of started businesses do not see the next year).
In conclusion, we can clearly see that these numerous and high taxes are just a detriment to the progress of our nations and our continent. I mean, how can we have taxes on intercontinental trade?