(The Monitor)
Last week, Daily Monitor published a list of 42 enterprises that owe government over Shs1,600b. It has also been reported that government is contemplating forgiving the debts. Whereas details regarding how and for what purposes the enterprises accessed the money are not clear, the issue needs to be critically examined.
I'm particularly interested in assessing the possible effect such spending of taxpayers' money has on the taxpayers' morale to pay taxes. I refer to a research publication on the internet titled: The effects of tax morale on tax compliance: Experimental and survey evidence by Ronald G. Cummings, et al.
Tax morale is defined as the intrinsic motivation to pay taxes from the moral obligation to pay taxes or the belief in contributing to society by paying taxes. The above publication contains interesting findings and below are some extracts.
"The experimental and survey results reported in the paper supported the hypothesis that tax compliance increases with the individual perceptions that the tax system is fair and that the government is providing valued goods and services with the revenues...."
"The perceived quality of political institutions is argued to affect taxpayers' willingness to pay taxes. If taxpayers perceive that their interests (preferences) are properly represented in political institutions, and they receive a desirable mix of public goods, their willingness to pay taxes increases. On the other hand, a state in which corruption is rampant is one in which citizens have little trust in authority and thus a low incentive to cooperate."
"A more encompassing and legitimate state will lead to higher tax compliance. Such a state may tend to increase taxpayers positive attitudes and commitment to the tax system, with an accompanying positive effect on tax compliance.
Taxes are the price paid for government services and taxpayers generally are sensitive to the way government uses tax revenues. Taxpayers perceive their relationship with the state not only as a relationship of coercion, but also as one of exchange. Individuals will feel cheated if taxes are not spent efficiently".
From the above, it is clear that for a government to achieve high compliance levels, it must be accountable. Taxpayers must be informed of how their taxes are being used by government. Where they feel the government is not properly using their taxes, there are chances that they will not cooperate hence tax contributions will be low.
We must not forget that previous media reports indicated that Uganda is among the countries with the least tax compliance levels. Whereas government is seeking to increase tax collections to reduce the deficit budget, deriving from the above findings, you will expect such government spending to discourage tax compliance.
The findings give good insights into the causes of non- tax compliance in Uganda. If government expects voluntary compliance, then it should be accountable. Simple. It is hard to tell how many people felt cheated, deprived and hopeless after reading the above story.
Imagine one pays; 30 per cent of salary (PAYE); 18 per cent on all goods that attract VAT, excise duty of 12 per cent on airtime and Shs850 per litre of petrol, among other taxes, yet most of the benefiting companies do not pay a penny in corporation tax since they are not profitable any way. But they receive a fortune out of someone else's sweet.
What makes matters worse, there is no clear policy regarding the bailouts to business people as to how they are determined, their recovery or otherwise. The government is obliged to explain to taxpayers how their money is used if it is to gain their cooperation.
Voluntary compliance is very important as the above publication indicates that enforcement alone will not do much in attaining tax compliance. "... compliance does increase with enforcement effort but the effect is less where the tax regime is viewed as unfair. Thus the results reported in this paper provide support for a model of tax compliance that extends beyond the typical 'economical crime' approach with its emphasis on enforcement effort and deterrence.'
The benefits of voluntary compliance need not to be over emphasised. It ensures higher revenues at least cost, which is every tax collector's dream. It is important that the matter of the Shs1,600b is handled logically or else it may encourage taxpayers to award themselves 'bailouts' before the money reaches the treasury. And this would be to the government's disadvantage.
(The writer is an associate consultant at Q-Sourcing Limited. He has over 10 years experience in taxation having worked with URA and Ernst&Young)
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