The collection of government taxes and non-tax revenue plays a very critical role in generating the funds necessary to provide essential public goods and services. These include vital functions such as waste management, education, healthcare, clean water supply, electricity, and road infrastructure—all of which are key drivers of poverty alleviation and sustainable economic development. Additionally, domestic revenue collection supports the financing of Uganda’s National Development Plan, fostering long-term growth and stability. However, many local governments face challenges in collecting property taxes efficiently, often due to outdated systems, limited resources, delinquent payments, inaccurate assessments, limited resources for enforcement and a lack of taxpayer compliance. Also, as urbanization increases and the demand for public services grows, it is crucial for local governments to enhance their tax collection mechanisms.
Additionally, collection of government taxes and non- tax revenue can also facilitate debt servicing, as Uganda operates with a deficit budget. To finance this deficit, the government borrows money from other countries and international organizations such as IMF, World bank by issuing marketable securities like treasury bills, notes, floating rate notes, Treasury Inflation-Protected Securities (TIPS). Uganda’s public debt has risen to unprecedented levels, reaching UGX 96.1 trillion (USD 25.3 billion or 52 percent of GDP) as of June 2023, according to an Auditor General’s report released in February 2024. Of this UGX 44.6 trillion is domestic while UGX 52.8 trillion is from foreign sources, placing increased pressure on Uganda’s revenues.
Despite the above rising debt, Uganda’s domestic revenue collection remains in low. In the FY 2024/25 budget speech, the collected revenue for FY 2023/24 was UGX 27.72 trillion, which was below the target of UGX 29.67 trillion, resulting in a revenue shortfall of over UGX 1.9 trillion. The country’s revenue-to-GDP ratio was estimated at 13.6 percent last FY 2023/24. However, Uganda’s revenue-to-GDP ratio remains below the Sub-Saharan Africa average of 16 percent, indicating a need to broaden the tax base. The observed low tax to GDP ratio is due to some of the following, large informal sector, narrow tax base, tax evasion and avoidance, inefficient tax administration, weak enforcement of tax laws, limited public awareness and compliance and low revenue collection at the local government level.
In Uganda, the local government remains an important source of collecting both tax and non-tax revenue. At the local government level, property tax remains a major source of government revenue. According to the Local Government (Rating) Act of 2005, local governments are authorized to levy property rates within their local area and conduct property valuations for taxation purposes. Between FY 2011/12 to FY 2015/16, property tax was the primary source of local revenue. During this period, total collection from property tax almost doubled from UGX 29.3 billion to UGX 52.5 billion. However, starting from FY 2017/18 to FY 2020/21 user fees became the primary source of local revenue which indicates that there is a need to improve property rate tax collection.
The earlier success achieved with domestic collection of property tax in local government was due to reforms at Local government and these included regular stakeholder engagement and strengthening the Directorate of Revenue Collection by hiring experienced staff. These reforms improved the identification, valuation, and assessment of properties and expanded the property tax base. However, majority of local governments in Uganda still face challenges, including low collection rates, weak enforcement, inadequate communication with taxpayers, outdated taxpayer administrative data, difficulty distinguishing between owner-occupied and non-owner-occupied properties among other challenges.
To address the above challenges, local governments should issue demand notices early to remind taxpayers to pay their rates on time, thereby improving property tax collection and reducing on business closures during enforcement, which taxpayers often perceive negatively. Government needs to improve the capacity of local governments to collect property taxes through public awareness campaigns to educate citizens about the importance of paying property taxes, how they are calculated and the benefits of compliance. Improve transparency in the use of collected taxes by clearly outlining how the money is spent on local services and infrastructure and accountability through conducting regular audits of property tax collections and expenditure. Additionally, strengthen administrative capacity though training local government tax officers in property valuation, tax assessment, and collection techniques and increasing human resources to avoid backlogs and inefficiencies.
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