TAXA TA XATI TION ON AN AND T D THE HE END ND OF AI F AID D - PowerPoint PPT Presentation

Uganda Revenue Authority DEVELOPING UGANDA TOGETHER TAXA TA XATI TION ON AN AND T D THE HE END ND OF AI F AID D DE DEPEN ENDENCE DENCE FO FOR AF AFRICA CA Allen Kagina, Commissioner General URA June 2011

Structure of Presentation • Introduction • What is Africa's problem? why aid? • Trends of aid allocation in Africa • Trends of Domestic Revenue mobilisation • How aid has been used to boost revenue mobilisation • Weaning Africa off aid. 6/15/2011 One Team One Dream 2

Introduction • The role of aid in the economic development of recipient countries is a contentious issue that often evokes emotions in Africa as well as within donor communities . • DRM to African countries is potentially the biggest source of long term financing for sustainable development and it is the life blood of all state governance such as the provision of public goods and services. • Taxation main tool for DRM, but developing countries not able to fully finance their expenditure through this hence the aid. • The question, however, is whether foreign aid as its disbursed to Africa, promotes the strengthening of tax administration or is simply a substitution effect? 6/15/2011 One Team One Dream 3

The Africa Crisis • At independence Africa sunk deeper into production and export of cheap raw materials yet imports are costly. • Large dependent and economically inactive population. • Lack of ideological independence • Lack of political education. • Lack of technology caused by lack of relevant technical education. • Middle class not producers of wealth but salesmen of other peoples products. • Africa guided by comparative cost advantage implying excessive dependency caused by lack of industrial capacity, science &technology , management skills and financial resources. 6/15/2011 One Team One Dream 4

Trends of aid allocation in Africa • Aid in existence since 50,000 35.0% 32.5% 1960. 29.9% 45,000 Share of Aid to Africa to total ODA Disbursement 28.8% 28.4% • Initially foreign aid low but 28.2% 30.0% 26.9% 26.7% 26.5% 40,000 Aid Disbursement (US $ Millions) the oil and food crisis in 23.9% 23.5% 25.0% 35,000 22.6% the 1970s led to increase 30,000 20.0% in volume. 25,000 • 03-05 and 06-08 decline 15.0% 20,000 fiscal pressures in DPs 15,000 10.0% economies. 10,000 5.0% • 05 to 06 increased aid for 5,000 - 0.0% MDGs support and debt relief to HIPC Countries. Africa Total Share of Africa to Total 6/15/2011 One Team One Dream 5

Trends of Aid allocation Africa • Aid channeled to social Trend of Aid allocation development aimed at 18,000 achieving the MDGs by 16,000 2015. 14,000 • Aid to social sector increase 12,000 10,000 from 22.6% in 05 to 33.4% 8,000 in 09. 6,000 4,000 • Aid to pdn sector increase 2,000 from 3.2% in 05 to 5.8% in - 09. 2005 2006 2007 2008 2009 • Aid to economic 100: SOCIAL INFRASTRUCTURE & SERVICES 200: ECONOMIC INFRASTRUCTURE AND SERVICES infrastructure increase from 300: PRODUCTION SECTORS 6.4% to 8.6% 400: MULTISECTOR • Implies that aid finances 500: PROGRAMME ASSISTANCE 600: ACTION RELATING TO DEBT consumption rather than 700: HUMANITARIAN AID investment ( Paul Collier ) 998: UNALLOCATED/UNSPECIFIED 6/15/2011 One Team One Dream 6

Management of aid in Africa • Economic management of aid calls for a coordinated strategy in terms of fiscal and macroeconomic responses for effective aid absorption. The two main areas are: – The fiscal sphere influenced by recipient governments – The monetary and exchange rate sphere under the central banks focusing on concerns of exchange rate appreciation, p rice fluctuations interest rates etc. • Donors are using the project based and the sector wide approaches for delivering aid. 6/15/2011 One Team One Dream 7

Trends of DRM in Africa • Positive trend in Africa driven Taxes as % of GDP by resource-related tax 70.00 revenues, that typically distract governments from 60.00 generating revenue from more politically demanding forms of 50.00 taxation. • 40.00 Lesotho high ratio- diamonds • Uganda low ratio – structure 30.00 of economy, tax structure, big informal sector and 20.00 exemptions. 10.00 • “in developing countries, tax policy is often the art of the - possible rather than the 2000 2001 2002 2003 2004 2005 2006 2007 pursuit of the optimal ” ( Tanzi Kenya Lesotho Mauritius and Zee ) Seychelles Uganda South Africa OECD Average Africa Average 6/15/2011 One Team One Dream 8

Challenges faced by DRM in Africa • Difficulty of taxing the wide spread informal sector. • Limited capacity of fiscal administrations i.e. skills. • Slow pace in adoption of ICT • Limited support from DPs on tax matters.(2% to public sector in Africa) • Low tax base coupled with tax evasion & fraud • Misuse of transfer pricing techniques. • Difficulty of taxing extractive industries. • Some stakeholders disproportionally represented in the tax base through the use of incentives. • Low savings ratio relative to investment requirements 6/15/2011 One Team One Dream 9

Aid boosts DRM in Africa (Uganda) • Since 1990 to date 15 African countries formed RAs with support of IMF and World bank. • URA first authority in 1991 with support of DFID to – Set up the authority – Introducing VAT (June 1996) and VENUS system – Strengthening the internal management systems of the administration and training – Improving the customs infrastructure -ASYCUDA • The total financial assistance given to the project up to 2000 was 8.6 million pounds (Gray et al 2001, 79 ) 6/15/2011 One Team One Dream 10

Aid boosts DRM in Africa (Uganda) • The relatively low success of the efforts was attributed to the design and governance of the project . • In 2005 IMF recommended reforms , known as “The Modernization Programme 2006 - 2010” focused on developing key infrastructure for revenue administration. • The project received funding from DFID, DANIDA, IMF , JICA etc 6/15/2011 One Team One Dream 11

Benefits of Mod 2006-2010 (Uganda) • Net URA collections have 8,000 80.0% % Contribution to Government Expenditure 67.9% grown at a 5 year average 65.5% 65.0% 7,000 63.5% 70.0% 60.0% 59.0% 55.2% of 17% as compared to 6,000 60.0% 53.2% 52.5% 51.1% 48.3% 5,000 50.0% 15% in the period prior to Ugx. Billions 4,000 40.0% the reforms. 3,000 30.0% • Tax revenue for 2,000 20.0% government expenditure 1,000 10.0% - 0.0% increased from 55.2% 04/05 at the time of the most recent reform to Govt Exp 67.9% in 2009/10 Domestic Revenue % contribution of TaxRevenue to Central Government Expenditure 6/15/2011 One Team One Dream 12

Benefits of Mod 2006-2010 (Uganda) Reform Tax Payer Country Quick service and easier 1 (URA Net) for both voice Efficiency gains in the tax communication and data administration. 2 Electronic Tax Real time access to URA Efficiency gains in the tax Administration platform for facilities resulting in reduced administration. Domestic Taxes (E-Tax). cost of compliance Modernisation of economy. 3 Revenue Authorities Pre lodging leading to Streamlined cumbersome customs Digital Data Exchange reduced delays in cargo and trade facilitation procedures (RADDEx) clearing and transiting. Fraud prevention 4 Tax Payer Education / Improved relationships with Better sharing of information with Tax curriculum taxpayers/better taxpayers./ Educated population understanding of tax law 5 Balance score card Client focused work force Efficiency gains in revenue administration . 6 Integrity enhancement Lowered incidences of corruption 7 Capacity building Working with skilled URA Increase in revenue due to staff improved URA staff skills 8 Reengineered processes Enhanced service delivery More efficient use of resources 6/15/2011 One Team One Dream 13

Aid indirectly boosts DRM in Africa (Uganda) • Regional integration efforts supported by DPs through the increase in budget support from 40% in 2008/09 to 60% in 2010/11 . • One stop border posts to harmonize all the immigration procedures thus saving time, reducing supply chain transaction costs , reduce duplication efforts , enhance border security and increase revenue among others. • Modernization of transport infrastructure and removal of non tariff barriers along the Northern and southern corridors is critical for trade expansion and economic growth in the sub region. DFID study estimated a cost of US $ 4.1 billion. • Energy sector supported through various projects ( NORFUND, SIDA)to increase domestic consumption. Uganda electricity consumption 69.5KWH while Africa average 578 KWH , has cost URA Ugx 283.66 Bn for 5year period to 09/10 on diesel refund for power generation. 6/15/2011 One Team One Dream 14