Here’s the case for extension of waiver on interest and penalty

Like every other year, 2023 was a rollercoaster for both the taxpayer and the taxman with several ups and downs.

The highlights for the year were so glaring that they could not miss to catch the eye of a common Ugandan. This is because of the taxman’s increasing aggressiveness juxtaposed with the general down performance of the economy the year.

Ordinarily, poor economic performance affects compliance amongst taxpayers which simultaneously increases a tax collection body’s aggressiveness in collecting taxes. This similarly causes friction between taxpayers and the taxman but also influences fiscal policy considerations, some of which are in favor of the tax collectors and others in favor of the taxpayers.

2023 was no exception to this. On May 18, 2023, for example, parliament approved the annual budget which, among others, prioritized enhanced revenue mobilizations and collections. It projected an economic size of close to $55 billion and proposed a Shs 25.6 trillion domestic revenue collections by end of the financial year.

To achieve this, one of the areas hinted on by the Finance minister Matia Kasaija related to encouraging compliance amongst taxpayers
by ensuring that they clear their outstanding tax liabilities. This came through an amendment to the Tax Procedure Code Act to reflect a waiver of interest and penalty where a person pays their principal tax by December 31, 2023.

When this amendment was passed by parliament in June, 2023, it caused general excitement amongst taxpayers as it was a dream come true. Accordingly, it made highlight of the year as URA, ministry of Finance and the government were seemingly giving back to the people.

Unfortunately, this amendment was shrouded with a little fallback that disrupted its envisaged purpose. Statistics indicate that as of December, 24, 2023, URA had waived close to Shs 273 billion whilst collecting approximately Shs 50 billion only. Even when taxpayers were excited about the waiver, it appears that few have embraced it because of several reasons.

First, whereas parliament passed the amendment in June, 2023, it was only assented to by the president on August 21, 2023. This was more than two months later, which significantly delayed implementation of the waiver in just four months. It also reduced the period upon which taxpayers could pay their outstanding liabilities. Most Ugandan companies and businesses are struggling in terms of financial cashflows.

This means that these businesses, especially small and medium enterprises (SMEs), have limited cash to promptly pay for taxes. As a result, the penalties and interest on their ledgers keep accumulating. These same businesses find it hard to mobilize their accumulated principal taxes and pay in a period of less than four months.

In as much as the gesture by parliament was generous, there’s need for it to be extended to ensure that willing but unable taxpayers can be accommodated.

Secondly, at times, taxpayers find themselves in situations where, out of sheer ignorance, their tax ledgers accrue interest or penalty. Take for instance a student who, being desirous of starting a business in Kampala, obtained a Tax Identification Number in 2018 to facilitate the business transactions.

In a sudden twist of events, the student attains a scholarship that necessitates his immediate departure from Uganda. This student is unable to continue with his business idea albeit registering it with URSB, KCCA, and URA. Over this period, he does not file returns or comply with other tax obligations.

For the five years that the student is away, URA’s automatic ledger system assumes that the student is operating business since he is tax- registered. The ledger system, being automatic, cannot tell whether the student is actually in business or not and for every period where the student doesn’t comply with his tax obligations, it generates an automated penalty. After five years, these penalties could be over Shs 30 million.

Upon concluding his course, the student returns to Uganda and tries to rejuvenate his business idea. Unfortunately to him, he finds a tax liability of Shs 30 million comprising of tax penalty and interest. He has neither the capacity nor the financial ability to continue with the business.

This is akin to what most businesses in Uganda face, and it is such penalties and interest that parliament had waived. If the waiver was to reach its intended goal of encouraging compliance, there is need to extend the period to capture such individuals. Parliament has powers under the constitution to amend laws, including those that affect the taxation of businesses.

It would be shameful to have Ugandan businesses choking on penalties and interest that cannot be collectable. Another reason as to why the waiver should be extended is because of the need for it to reach many taxpayers. Information flow in Uganda is largely impaired. URA has done a highly commendable job in sensitizing the populace through rigorous advertising of the waiver.

However, this information could not have reached majority of the owners of small and medium enterprises who operate without tax advisers that are aware of the waiver. Parliament should, therefore, consider extending the period of the waiver to cover such taxpayers as well.

The writer is an advocate of the High court.