Business
Poor economic environment suffocates most businesses to death
MP Henry Kibalya blames the country’s low tax revenue on tax evasion by the rich political class who are also in business
A study that was carried out by Twaweza through its Sauti Za Wanachi arm, and supported by Uganda Revenue Authority and the Tax Justice Alliance, has indicated that whereas 45% of Ugandans started businesses in the last five years, almost 80 percent of them have since collapsed due to lack of demand, high taxes and high cost of doing business which has depleted their capital rendering many unable to expand.
The Study was conceived to establish the factors that cause tax non-compliance as a way to find solutions to them and help shape policies on taxes as a key pillar of economic development.
“Creating an environment that enables citizens to form and run businesses – to access capital, to operate without undue obstacles, to find markets – is central to stimulating economic growth. And similarly, establishing a tax environment that generates sufficient revenue in a fair way that is understood by citizens despite the burden of taxation is key to national development as well as to managing the economy,” say the leaders in a brief of the report.
Presenting the findings of the study dubbed citizens’ views and experiences of business and the tax environment, Marie Nanyanzi the program officer at Sauti Za Wananchi says insufficient capital was cited by the respondents as the main reason for business closure.
“The main reason given by citizens for why their business(es) are no longer operating is a lack of capital, cited by five out of ten of those whose business has closed (50%). Other reasons given include lack of demand (13%), high cost of inputs (12%), high level of competition (11%) and Covid-related reasons (10%),” says the report.
Nanyanzi further explains that according to this year’s findings there was a slight improvement in terms of Ugandans who find it easy to do business.
In comparison to the 2019 survey, Nanyanzi further says there is a slight increase in the number of Ugandans represented by 50% saying that it is hard to do business in Uganda as compared to the 55% of citizens who have a similar view in 2019.
Business owners are evenly split on the current state of their businesses Roughly the same number of owners of currently operating businesses say their business is growing (36%) as declining (39%). The remainder say the business is neither growing nor declining (25%).
Business owners are a little more pessimistic currently about the state of their businesses than was the case in late 2019. The proportion who say their business is growing has fallen from 42% to 36% over this period, and the proportion who say it is declining has risen from 28% to 39%.
Poorer business owners, including those aged over 55, those with lower levels of education and those in Eastern and Northern regions, the report showed, are more likely than others to say that their business is declining.
Business owners in Kampala are more positive about the state of their businesses.
But generally, the report showed, a gloomy environment is more prevalent than a more optimistic one. As Francis Kabuye, the head of the policy and advocacy at the Federation of Small and Medium-Sized Enterprises (SMEs), obserbed:
“Most businesses are struggling. The number of enterprises that are declining are bigger than the number of enterprises that are improving,” he said.
Welcoming the findings as good feedback for the economy, Isaac Arinaitwe, a senior economist at the Ministry of Finance says more Ugandans appreciating that it is easy to do business in Uganda is a clear indicator that the economy is on a recovery trend.
Arinaitwe adds that the government has put in place interventions like the Parish Development Model and better tax administration efforts to tackle challenges that lead to business closures.
More Ugandans appreciate the significance of paying taxes for the country’s success and economic development.
Researchers say that citizens are increasingly recognizing the fact that for them to access public service regardless of the quality, it is important for them to pay their taxes.
According to a 2022 survey on citizens’ views and experiences of business and the tax environment, there is a slight improvement in the number of Ugandans that recognize the need for taxation as compared to the findings in 2019.
Nanyanzi explains that there is also a slight increase in the number of Ugandans who say it is wrong for taxpayers to hide their income from authorities in order to avoid paying taxes.
The report states that: “Citizens are more likely to disagree than agree with the views that taxes are spent wisely and that they understand what taxes are spent on. Further, a low (and declining) number of citizens (13%, down from 33% in 2019) think that current tax rates are fair.”
Meanwhile, Nanyanzi further explains many Ugandans do not understand the tax system in the country to the extent that they cannot attribute the functions of Uganda Revenue Authority or even be aware of the different taxes they pay apart from Value Added Tax.
Michael Masembe, the Tax Education Manager at Uganda Revenue Authority admits that the findings by Twaweza Uganda will help the tax body to improve its performance in order to meet its revenue mobilization targets set by the ministry of finance.
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