URA, Small Traders Clash Over Tax Policies, Disrupting Business

Summary:

• Following a two-day strike that brought Kampala and major towns to a standstill, the conflict between the Uganda Revenue Authority (URA) and traders in Kampala has escalated to President Yoweri Museveni’s attention.

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Uganda’s Revenue Authority and small-scale traders in Kampala are at odds over tax levies, leading to business disruptions that have reverberated across major towns like Masaka, about 120km southwest of the capital.

The bone of contention lies in the implementation of the electronic fiscal receipting and invoicing solution (EFRIS) by the tax authority, aimed at reclaiming value-added tax. However, traders find this move burdensome, especially amidst sluggish business activity.

The traders lament unfair competition, pointing fingers at manufacturing firms that sell goods at both wholesale and retail prices within business hubs. They also decry the hefty interest rates, steep import duties on apparel, and inflationary pressures, which have inflated prices of essential household items, stifling commerce.

Moreover, borrowing costs have soared, diminishing returns in the commercial real estate sector. While the Bank of Uganda indicates an average lending rate of 18 percent, traders argue that they often face rates of 30 to 35 percent or more, exacerbating financial strain.

One of the core disputes revolves around the application of VAT, with traders asserting that once it’s collected from factories, it shouldn’t be reimposed at retail outlets. Conversely, the Uganda Revenue Authority contends that VAT spans the entire value chain to prevent tax evasion, aiming to ultimately recover it from end consumers.

Despite VAT being fully settled during importation or factory departure, URA gradually collects it through subsequent value additions until it’s paid by the final customer. The URA Commissioner General, John Musinguzi, emphasizes the necessity of this approach to prevent revenue leakage, highlighting its global applicability.

However, traders argue that the EFRIS threshold, set at a gross turnover of Ush150 million, is exploitative. Currently, only a fraction of traders in Kampala have adopted EFRIS technology, exacerbating tensions.