Why Uganda (LDC’s) rely (depend) more on Indirect taxes than on Direct taxes

1. The low taxable capacity due to wide spread poverty is not suitable for direct taxes but appropriate for indirect taxes. This is because they are included in the prices of consumer commodities and therefore their impact is not directly
2. Indirect taxes have lower chances of tax evasion and avoidance as compared to direct taxes. This enables the government to raise more tax
3. Indirect taxes have a wider coverage than direct taxes. This is· because they are levied on variety of commodities which are consumed by all people in the
4. Indirect taxes are less felt and resented as compared to direct taxes. This is because they do not impose a direct tax burden to the tax This minimizes the chances of political sabotage in the country.
5. Uganda greatly depends on international trade. Therefore it is likely to raise more revenue from indirect taxes than direct taxes in form of import and export duties which form a big percentage of the tax revenue.
6. Indirect taxes are more productive than direct taxes. This is because they are convenient to pay and more economical in terms of collection costs than direct
7. The Ugandan economy is dominated by a large subsistence sector and a small industrial sector which is more appropriate for indirect taxes than direct The indirect taxes can used to trap all possible tax bases in such sectors.
8. High direct taxes discourage production and investment as opposed to indirect taxes. This is because they have a direct impact on the tax payer
9. Direct taxes are associated with high degree of discrimination and sectarianism as opposed to indirect taxes during the process of tax administration and

1O. Indirect taxes are used to protect the domestic industries and to correct the balance of payment problems which is not possible with direct taxes.