Causes of a narrow Tax base in Uganda (Developing Countries)
- High levels of poverty among the tax payers. Many people are poor and therefore they cannot afford to pay income tax. This greatly reduces tax revenue received from incomes of tax
- High degree of tax evasion and avoidance by the tax payers. This is either due to lack of commitment by the tax officials or existence of loopholes (weakness) in the tax law. Therefore, many activities are carried out without paying taxes.
- High levels of unemployment and under employment. Many people are unemployed and therefore they cannot pay certain taxes for example pay as you earn. In addition, many tax payers are under employed and this limits the amount of money they pay in form of taxes.
- Existence of a small industrial sector. Uganda’s industrial sector is small and weak yet it is the major source of tax revenue. In addition, the high degree of tax exemptions especially on foreign investors who would otherwise be potential tax payers narrows the tax base.
- High levels of income inequalities among the tax payers. The income gap between the rich and the poor is so wide and therefore there are few individuals who can carry out economic activities to effectively pay es.
- Wide spread political instabilities and insecurity. Such instabilities discourage potential investors who would set up investments and widen the tax base.
- Poor social and economic infrastructures. For example inaccessible roads and poor telecommunication networks. This makes it difficult to access especially the rural areas to mobilize and monitor the tax collection
- High levels of corruption and embezzlement of tax revenue by tax collectors (officials).The little tax revenue collected is also diverted by the corrupt officials for personal use and this reduces the tax revenue
- Inadequate information by the tax payers about the importance of paying taxes. This mainly caused by lack of sensitization by the tax officials and therefore some people do not take payment of taxes as their
- Incompetent, inadequate and inefficient tax administrative machinery. Most of the tax officials are not well trained to carry out tax assessment and administration. They end up harassing the tax payers and this increases the chances of tax evasion hence low tax
- Low levels of entrepreneurship in Uganda. There are few individuals who can set up and sustain businesses upon which meaningful taxation can be. The existing businesses are small and they lack proper record keeping which makes tax assessment very
- Large subsistence sector in Uganda. Most economic activities are under the informal sector and therefore, it is difficult to tax them. This narrows the tax
- Poorly developed infrastructure
- Limited employment opportunities
- Limited economic diversification
CATEGORIES Economics
TAGS Dr. Bbosa Science
