In Uganda and many other countries, increasing government revenue has become a challenging task. The revenue to GDP ratio has declined. Tax avoidance and tax evasion are important reasons for this shortfall in revenue.
The expectation is that tax reforms would significantly reduce past fiscal slippages and increase revenue. Citizens and businesses continue to complain of heavy tax burdens and many businesses have closed operations claiming that they are unable to pay taxes.
In civic education we are told that it is the duty and responsibility of citizens to pay taxes. They only forgot to tell us that it is not the duty of government to misuse tax revenue. When government fails to spend on priorities in the eyes of the common man and instead spends the revenue on luxury and individualistic programs that do not benefit the citizens there is no reason then why people should continue to pay taxes.
Government spends the tax revenue collected from its citizens in a number of ways. They spend on health programs, military, interest on the national debt and many others. It is no secret that the government isn’t gazelle intense about paying off its debt. The taxes help cover their pensions, medical care, education programs and disability payments. The government also funds food and agricultural programs.
Statistics show that Sweden is ranked second in the highest tax burden. The Swedes support the second-highest tax burden in the world – after Denmark’s – with an average of 48.2 per cent of GDP going to taxes. Yet Sweden, along with equally high-taxing Denmark and Norway, tops almost every international barometer of successful societies.
For most Swedes paying high taxes is a benefit, not a problem and the citizens are very happy to pay high taxes because they know they will get value for the money later on. Citizens are pleased with the schools their children go to since they receive a very good education and they have great teachers.
The health services are okay and security is given priority. Most people trust the state to manage taxes well. There’s a broad, deep faith that the money going into the welfare state will be employed usefully.
Usually governments think that increasing more taxes can avail them with more revenue for growth and development. Which is sometimes true to a certain extend. There is nothing more realistic than keeping the tax burden tax low and instead tame the over spending by government. The effects of over taxing are grave and efforts must be made to avoid it.
The presence of high taxes and a big tax burden may be a manifestation of the government’s wasteful expenditure. Sometimes governments do not need to increase taxes but to reduce their expenditures that maybe wasteful and luxurious.
Why increase the citizens’ tax burden when you can actually tame your uncontrolled expenditure? The government has programs that rely on self-reported, unverified information which are susceptible to fraud and waste. If corruption in tax administration is controlled and government expenditure is also monitored fiscal discipline can be achieved.
Governments that pretend to do this actually don’t have the will to do so. If officials are to get cleverer and reduce wasteful spending, there is need to move away from a “pay-and-chase” model, in which auditors scramble to recover money spent on fraudulent claims. They should move towards one that prevents such payments from being made in the first place.
Excessive public expenditure impacts adversely not only on the fiscal balance but the trade balance as well. Increasing revenue to cope with escalating public expenditure is not realistic.
Therefore while increasing revenue is vital, decreasing government spending is an urgent need. It is the difficulty of containing government expenditure that makes the containment of the fiscal deficit a daunting task but an immediate necessity.