G20 SHOULD INVOLVE DEVELOPING NATIONS TO PLUG TAX LEAKS BY GLOBAL FIRMS.

Australia hosted the leaders of the world's 20 biggest economies for the G20 summit in Brisbane on November 15 and 16. Tax policy analysists should increase pressure on the world’s richest nations to involve developing countries in a major operation that seeks to stop multinationals from dodging taxes in poor countries.

In Summary,

• Tax avoidance is technically legal but companies must follow certain rules in reporting profits. Sometimes, they take advantage of bilateral agreements to lie about the source of profits.
• Developing countries which host many of the multinationals lose the most in dodged taxes are not included

From the Tax policy perspective pressure should be increased on the world’s richest nations to involve developing countries in a major operation that seeks to stop multinationals from dodging taxes in poor countries. It is a step that the campaigners argue will help nations like Uganda to handle the perennial problem of dealing with firms that have registered subsidiaries in tax havens.

The G20 leaders’ meeting in Brisbane brought leaders of 20 countries controlling more than 80 per cent of the world’s wealth to discuss youth unemployment, global financial governance and reducing barriers to trade among others.

They talked about tax avoidance which their financial ministers had already agreed on the common reporting standard. If it goes through, it will be a requirement that banks identify and report the tax affairs on non-residents to their home countries as well as force multinationals to report their accounts in each country of their operations.

Although this is noble, the proposal has two flaws. Activists say developing countries which host many of the multinationals but lose the most in dodged taxes are not included. In fact, the multinationals’ country by country reports will only be available to tax authorities, not publicly.

What is required is a global regulation because Uganda cannot solve this problem alone. This will help authorities to access information from other countries as opposed to the situation now where a bilateral agreement is required.  All major scandals in Uganda have in one way or another, involved companies with registered affiliates in tax havens. This shows the extent with which the problem must be dealt with now.

The companies use transfer pricing methods to declare losses, which effectively disqualified them from paying income tax.  Tax avoidance is technically legal but companies must follow certain rules in reporting profits. Sometimes, they take advantage of bilateral agreements to lie about the source of profits. The new effort to tame this is being spearheaded by the Organisation for Economic Co-operation and Development (OECD), a grouping of more than 30 countries that discusses market economy policies for their members.

There is more that Uganda can do in order to benefit from the OECD-BEPS project and G20 recommendations.

Kyambadde Andrew Mukasa.

Tax Associate.

HOW THE PRESUMPTIVE TAX COMFORMS TO THE FIVE CANONS OF TAXATION. {INCOME TAX ACT}

On 20th November 2014, while on along business trip to Kisoro, something crossed my mind, As URA assesses people in kikuubo down town for presumptive tax, what about those whose threshold is less than 50,000,000/= in upcountry, are they also assessed. Is presumptive tax fair? I have come up with an analysis of how presumptive tax conforms to the Canons of  taxation in a very simple manner with reference to the Income Tax Act.

The introduction defines and explains the key words and outlines the five canons to be discussed. Presumptive tax is discussed concurrently against each canon after which a conclusion is drawn.

INCOME TAX ACT PERSPECTIVE

Presumptive tax refers to the means of taxing-liability which is not based on the ordinary method of assessment that is based on the tax-payer’s returns of income. I.e. The term presumptive taxation covers a number of procedures under which the ‘desired’ base for taxation is not itself measured but is inferred from some simple indicators which are more easily measured than the base itself. The presumption on which it is based is that the calculated amount of tax represents the minimum tax liability the tax-payer would incur. Basically, this kind of tax is enforced in economies where majority of the population comprise of hard-to-tax taxpayers and where the administrative resources are very scarce. Such tax payers are hard to assess because they earn low incomes; they sell their goods and offer services largely for cash which makes it impossible to apply withholding tax; they are compelled by non tax reasons to keep books of accounts and their number is too great which renders it impossible to intensively scrutinize a reasonable fraction of them. This makes it easy for such a tax-payer to conceal their incomes.

The law relevant to Presumptive tax is enshrined in Section 4(5-7) of the Income Tax Act. Section 4(5) is to the effect that where the Gross Turn Over of a resident tax payer for the year of income is less than fifty million shillings, the amount of tax payable is the amount determined in accordance with the Second schedule of the Act, subject to subsection (7). In alternative to         S 4(5), the tax-payer may apply to the commissioner to be taxed under S 4(2); which election according to subsection 6, must be lodged by the due date for the tax-payer’s return for the year of income to which it relates.

However, section 4(2) is expressed to be subject to section 4(5) therefore section 4(5) is applied automatically.  Section 4(5) does not apply to taxpayers specified in section 4(7) of the Act.

 It should be noted that section 4(5) applies to individuals, trusts or companies; and Gross Turn Over is defined in section 2(gg) to mean gross proceeds from business without deduction for expenses. In addition, section 4(5)(a) is to the effect that the income tax payable is a final tax on the business income of the tax-payer. 

Paragraph (b) goes ahead to state that no deductions are allowed under the Act for any losses or expenditures incurred in the production of the tax-payer’s business income, and no tax credits are allowed except as specified by the Second Schedule to the Act.

In its nature, the Presumptive Tax system may be rebuttable or irrebuttable. When the tax-payer disagrees with the result reached, he/she may appeal and prove that his/her actual income calculated under the normal tax assessing rules, was less than that calculated under the presumptive method. On the other hand, irrebuttable presumptive tax assessment is specified in the Income Tax Act, and is legally binding.

 With this background regarding the nature of Presumptive tax, the analysis below examines the extent to which it conforms to the five major canons of a good tax system. These include; certainty, Economy, convenience, fairness/equity and simplicity.

      a) Certainty

The law creating a tax system must be clear and plain to the tax-payer and the collector. This requirement is further stretched in that certainty should mean, ‘certain to the man on the street-to all of us, not just the tax profession; and must be known and understood by all adult members of the society. The tax should be certain about the time when the tax shall fall due; after how long it shall always fall due; the manner of payment; the currency in which the tax should be paid and how much a tax-payer is expected to pay, at all times.

The rationale is to protect both the tax-payer and government interests, against the tax-collector. I.e. prevents aggravation of the tax or extortion by the threat of aggravation by the tax-collector.

In relation to this, presumptive tax significantly complies with the canon of certainty. Under section 4(5), the actual tax-payer is ascertained, and the section is to the effect that it is a final tax, no deductions and tax credits are allowed except as provided for in the Second schedule to the Act; hence the evasion ratio is low. The tax-payers to whom presumptive tax is applicable are clearly stated and those to whom it does not apply are also provided in section 4(7). To this extent, certainty of liability is also ascertained. However, the Provisional tax on Gross Turnover under sections 111 and 112 may be too complicated to be understood by the illiterate tax-payers, which may result into tax avoidance.

b) Economy

A good tax system should be cheap in terms of administration i.e. collection, implementation and enforcement. The tax system ought to be contrived in that it should both take on and keep out of the pockets of people, as little as possible, over and above what it brings into the treasury of the state. The art of taxation consists of so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of ‘hissing’. Hence the levying of the tax should not require a great number of officers; should not discourage investment; the penalties should not ruin the evaders to the extent of ending the business and should not consist of frequent visits which may cause vexation leading to bribery.

Presumptive tax, to a larger extent, conforms to this canon as it does not require the tax-payer to keep books of accounts leading to less cost for the tax-payers operating small businesses. Additionally, under the Second schedule of the Act, the tax-payer has a choice to pay whichever amount of tax is lower therein, and there are tax credits allowed. However, under section 92, the tax-payer is required to furnish a return of income which may be a burden to the tax-payer.

c) Convenience 

The tax should be levied at the time and in a manner which is most convenient to the tax-payer. I.e. the government must ensure that the tax-payer shall be in position to pay the tax assessed at a given time; otherwise, it is the government that will suffer the consequences.

 In case of Presumptive tax, it is conveniently charged at the end of the financial year; and the amount is stipulated in the Second schedule. The tax-payer is also allowed to pay provisional tax under section 111(1). Moreover subsections (2) and (4) of section 111 provide for payment in installments, which makes it more convenient to the tax-payer. In addition, section 96 gives the tax-payer the first priority of assessment. In addition, URA has a department of small tax-payers which is accessible to Presumptive tax-payers to settle tax disputes.

d) Fairness and equity

This means the equality of sacrifice. Ie people should pay taxes in proportion to their income. According to Adam Smith, ‘The subject of every state ought to contribute towards the support of the government as early as possible, in proportion to the revenue which they respectively enjoy under the protection of the state.’ This form of equity is realised at two levels; the vertical and horizontal equity.

Vertical equity refers to the situation when people in different circumstances are taxed differently, whereas horizontal equity means that people in similar circumstances are taxed equally. The canon of equity is concerned with the general welfare and the fiscal burden on the tax-payer, in relation to economic progress.

As regards Presumptive tax, it conforms to this canon. The Second schedule provides for vertical equity in that people in the same income bracket are liable for similar amounts of tax. The same schedule is characterized by vertical equity in that thereunder, people in different circumstances are taxed differently. I.e. the rate of tax increases as the income increases. However, this tax system derogates from the canon as it only looks at the Gross Turn Over of the business, ignoring the expenditure the tax-payer incurs in producing the income.

In addition, the powers entrusted to the Commissioners General under section 95, to assess the chargeable income if the tax-payer defaults or if she/he is not satisfied with the return; seems to be arbitrary.

e) Simplicity

The tax system should be fairly simple, plain, and intelligible to the tax-payer. I.e. it should not be complicated and difficult to understand. According to Ian Lambert, simplicity means ‘simple to you and me, not just to the tax profession’. It is equally important to note that in light of the canon of certainty, the time of payment, manner of payment, the quantity to be paid, ought to be clear and plain to the tax-payer and every other person.

Presumptive tax, it conforms to this canon. The tax system is simple and specific as to whom it applies to whom it does not apply under sections 4(5) and 4(7) respectively. In addition, Schedule 2 is very clear and unambiguous about the rates to be paid. However, the biggest challenge is that the tax system is applied basically to the illiterate tax-payers who are unable to understand English, the language in which the law is written. The other argument is that generally, tax matters are complicated for lay tax-payers to understand.But in the case of Stanbic Bank Uganda Limited & 7 Ors V Uganda Revenue Authority it was held that ambiguity in a tax statute is resolved in favor of the tax-payer.
 

 CONCLUSION

At first impression, section 4(5)(b) may appear to be harsh and inconsiderate of presumptive taxpayers since it prohibits any deductions for expenditures and losses incurred in the production of the business income. But this is justifiable, considering that presumptive taxpayers, generally, do not keep books of account such that any alleged expenses and deductions are rendered untenable and would result in violation of the canon of economy.

Section 111(4) provides for payment of tax in installments, otherwise known as provisional tax. It provides that, ‘A provisional taxpayer who is an individual is liable to pay four installments of provisional tax, on or before the last day of the third, sixth, ninth and twelfth months of the year of income, in respect of the taxpayer’s liability for income tax for that year.’

This section is alive to the socio-economic realities of Uganda, by recognizing that, it is possible for the taxpayer not to have the tax amount due in a lump sum and therefore permits part-payment. Thus, it conforms with the canon of economy in so far as it gives taxpayers the opportunity to settle their tax obligations without risking destitution, through the device of payment in installments.

As can be seen from above, to a large extent, presumptive tax and as stipulated in The Income Tax Act, conform to the canons of taxation. True, there are some loopholes and ambiguities in the Act, but these are not necessarily fatal. I am convinced that, if the opinion of Adam Smith’s spirit were to be sought, on the question at hand, the above provisions of the Act would receive a nod of approval.

References.

1. David R. Salter, Julia L.B. Kerr, Easson: Cases and Materials on Revenue Law (1990)

2.Income Tax Act  Cap. 340 (Laws of Uganda)

3. Geoffrey Morse and David Williams, Davies: Principles of Tax Law (2000) 

4. Adam Smith; AN INQUIRY INTO THE NATURE AND CAUSES OF THE WEALTH OF NATIONS (1776)

2014 G20 SUMMIT – STRENGTHENING TAX SYSTEMS.

Between 15th - 16th November 2014, the G20-leaders’ summit took place in Brisbane, Australia. The G20 agenda focused on growth and resilience with priorities among others of financial regulation, Tax and Trade.

The G20’s record in reforming the international financial system and taxation regulation is a constructive and sustainable force in the international governance space and by addressing the current weaknesses in the global financial systems such as taxation reforms and putting forward new reform agendas in particular the policy perspective reforms such as BEPS (Base Erosion and Profit splitting), Tax avoidance, and Automatic exchange of information, the G20 are working towards helping the developing countries improve on their corporate tax revenues. Below is a discussion of the opportunities and challenges for Uganda.

Automatic Exchange of Information.

The exchange of tax information provides significant benefits for Uganda that is improving transparency, lifting voluntary compliance, provision of timely Intelligence information on the tax affairs of the residents. At the summit a common mantra of “No representation, no taxation” was discussed that is a country has no moral right to tax their citizens if they don’t adequately represent the interests of their citizens and on contrary that “no representation, without taxation, implying that it is essential that there is a sound and effective tax system that is capable of supporting a well-functioning government that can serve its citizens.

Uganda faces considerable challenges in implementing the standard especially with the classical nature of the tax system. Our administration is still to a greater percentage paper based and transitioning to electronic platforms requires substantial work and time, according to the World Bank Doing Business 2015 data, Uganda ranked 150 out of 189 economies for example it was established that it takes five (5) days to Obtain a Tax Identification Number (TIN) and Register for taxes at the Uganda Revenue Authority.

Tax Base Erosion and Profit splitting.

The 2014/2015 tax amendments point to the fact that Uganda is working towards building the tax base. However the diverse and unique circumstances of the operations of multinationals imply that Ugandan tax administration has a duty to defend its tax base against erosion.

BEPS such as transfer pricing and avoidance of permanent establishments through aggressive tax planning as well as excessive financial payments or thin capitalization are areas of concern for developing countries that were discussed at the summit.

Sections 64 & 79 of the Income Tax Act, elaborate circumstances under which income is deemed to have been split and sourced however with the digitalization of the economy, The tax environment is changing and the traditional source and residence rules are becoming obsolete.

The summit proposed a new country by country reporting template that would require MNEs to report to tax authorities on their activities by country in a standardized template and this would enable the tax authorities to conduct high level transfer pricing assessment.

However, the challenge for Uganda is the inadequate information about the operations of the multinational and even where information is made available, the capacity to efficiently analyze and act on the information through the domestic legal frame work is often limited.

Way forward

Uganda Revenue Authority needs to continuously improve and modernize the IT infrastructure and also ensure a degree of compatibility with systems in other countries in order to benefit from the automatic exchange of information program.

There is a need for capacity building for the tax administrators especially for the digital economy as this will improve the ability to build sustainable capacity that will handle these aggressive tax planning methods. 

Kyambadde Andrew  M.  

Understanding Gross Income Of Uganda's Income Taxation.

Its been long since i last blogged on here but never the less i have been cooking and developing many ideas especially in the areas of Taxation.

Today i want us to explore Section 17 of the Income Tax Act. Cap 340.

Section 17 of the Income Tax Act. cap 340 explores and explains what Gross income is.Section 17(1), notes that Gross income of a person for the year of income is the total amount of a)Business income, b)Employment Income and C) Property Income. In other ward, if you are involved in any income generation activity that falls under the above category, you source of income is clearly defined in the Domestic Tax laws of Uganda.

RESIDENCE AND SOURCE .Why does residence matter? 

1. RESIDENCE. 

i) A resident person is subject to tax on his worldwide income (Section 17(2)(a) of the Income Tax Act, Cap 340, as amended (hereinafter, “the Act”)). ii) A non-resident person is subject to tax only on income derived from sources in Uganda (Section 17(2)(b)). Thus, residence status determines whether a taxpayer will be liable to tax on his worldwide income or only on income derived from sources in Uganda. Exceptions to worldwide tax on resident persons i) Foreign source employment income derived by a resident individual is exempt from tax if the individual has paid foreign income tax in respect of the income (Section 80(1)). ii) Foreign source income derived by a short-term resident or an immediate member of his family is exempt from tax (Section 21(1)(m)). Note: A “short-term resident” means a resident individual, other than a citizen of Uganda, present in Uganda for a period or periods not exceeding two (2) years (S. 21(2) of the Act). 

The Act sets forth four (4) alternative tests of residence for individuals - i) Permanent home in Uganda (S. 9(1)(a)); ii) Physical presence in Uganda for 183 days or more during a 12-month period commencing or ending during the year of income (S. 9(1)(b)(i)); iii) Physical presence in Uganda, during the year of income, and for more than 122 days in each of two (2) preceding years (S. 9(1)(b)(ii)); or iv) Official of the Government of Uganda posted abroad during the year of income (S. 9(1)(c)). Note: Residence status is not permanent; it may change from year of income to year of income (S. 9(2)&(3)). 

The Act sets forth three (3) alternative tests of residence for companies - i) Incorporation in Uganda (S. 10(a)); ii) Management and control exercised in Uganda at any time during the year of income (S. 10(b)); or iii) Majority of operations undertaken in Uganda during the year of income (S. 10(c)). 

The ‘management and control’ test requires that both management and control exist. Management without control or vice versa is not sufficient. Generally, ‘control’ lies with the shareholders, while management is exercised by officers and directors of the company.  Where directors of the company are also shareholders, management and control could be deemed to be concurrent. The Act does not outline the criteria to be following in determining where “majority of operations” are undertaken. The following factors may be relevant. 1) Number of branches or offices maintained in Uganda relative to the company’s overall offices; 2) Number of employees employed in Uganda; 3)Nature of activities conducted in Uganda relative to the group’s overall activities; 4)Revenues generated in Uganda relative to the company’s total revenues; 5) Volume of sales,Residential status of the majority share holders, etc.

The Act sets forth three (3) alternative tests of residence for trusts - i) Established in Uganda (S. 11(a)); ii) Trustee of the trust was resident (Sec 9) in Uganda during the year of income (S. 11(b)); or iii) Management and control exercised in Uganda at any time during the year of income (S. 11(c)). 

The Act sets forth three (3) alternative tests of residence for retirement funds - i) Organized under the laws of Uganda (S. 13(a)); ii) Principal purpose of providing retirement benefits to resident individuals (S. 13(b)); or iii) Management and control exercised in Uganda at any time during the year of income (S. 13(c)). One test for a partnership is defined under (Sec.12): a partner in the partnership was a resident person during the year of income.

2. SOURCE. What is the Significance of source of income in Taxation.

 A taxpayer or the Uganda Revenue Authority must determine the source of income for one or more of the following reasons: i) To determine whether a nonresident person is subject to Ugandan income tax with respect to certain income (S. 17(2)(a)&(b)). ii) To determine whether a resident person may claim a foreign tax credit with respect to certain income. A foreign tax credit is available only with respect to foreign income tax incurred on foreign-source income (S.81(1)). iii) To determine whether a resident person may claim an exemption from Ugandan income tax with respect to certain income for example.: a) foreign source employment income derived by a resident individual (S. 80 of the Act). b) foreign-source income derived by a short-term resident (S. 21(1)(m), S. 21(2) of the Act).

When determining one's source of income, it is relevant to put into consideration both the residence status and the Source of income in the existing geographical jurisdiction.

From the above study, One may ask, Is all the income earned by the resident subject to tax in Uganda?,How can i know  the total tax payable or tax credits claimable in Uganda.

Sec.21 will help to address those questions and will be reviewed in detail in our next Blog.

Thank You.

 

WHY PENTECOSTAL CHURCHES SHOULD PAY TAXES.

WHY PENTECOSTAL CHURCHES SHOULD PAY TAXES.

This is not to suggest that you abandon your church or your faith. Am a Christian and an Economist by profession. For one thing, any religious organization that lives up to its commitments to its congregation and community would have nothing to fear from filing a tax return and should clearly start its expenditure patterns which should be inline with the objectives on its certificate of incorporation, After that, it should then be exempted from paying taxes just like every other non-profit. For another, we need to determine if Pentecostals in Uganda are qualified to maintain their status quo as tax exempt organizations considering their vast financial resources. In Uganda’s corporate Income Tax Act establishes a category of exempt organizations. Tax exempt organizations include charitable, educational and religious institutions of a public character (1st schedule of Income Tax Act, Cap. 340). Therefore, Pentecostals being a religious institution is exempted from income tax in Uganda, Pentecostals are exempted from corporation tax because they are regarded as organization of a public character (Bahemuka, 2006) and a non-profit organization (Non-Governmental Organization Registration Act). But of recent am asking my self why Pentecostals should maintain tax exempt status because they are perceived to be business oriented organizations they advertise, price  special service programs, profit oriented which all qualifies them as businesses.

Pentecostals emerged from the church and the movement is connected with a group of Christians that emphasize the gifts of the Holy Spirit. The free dictionary by Farlex described Pentecostals as “any fundamentalist protestant church that uses revivalist method to achieve experiences comparable to the Pentecostal experience of the first Christian disciples”. The Pentecostals in Uganda are registered under Section 1(d) of the Non-Governmental Organizations (NGOs) Registration Act of 1989, amended 2006.so with that background, the law deems them “Tax Exempt”

It will be obvious to rational people that exempting religious organizations from paying any taxes is a clear case of government "respecting an establishment of religion." But throughout history we have seen many otherwise-lucid thinkers insist otherwise, including Supreme Court justices who uphold biblical views when their taxpayer-funded jobs explicitly require them to uphold the Constitution. Because religious organizations are not accountable to the citizens who subsidize them. If churches engage in charitable work that benefits the community, do all citizens have an interest in supporting such endeavors with various tax exemptions? This is the sound basis for tax exemptions for non-profit organizations, whose activities and finances are subject to audit and public scrutiny. In the case of religious organizations, however, the books are closed. A certain new paper publication in Uganda ran an Article explaining and exposing how the different kampala churches run un Audited  books of accounts, my question is who is responsible for this money and how is it spent? Church groups receiving tax exemptions must annually file a detailed 360 statement itemizing where the money has gone.

What if churches do not engage in charitable work? Or do so far less efficiently, effectively - or charitably – than the Amount of Money (Income) that they made? Religious organizations can and do take great advantage of their tax-free status. Many amass great wealth and vast media empires and buildings - all of it off the tax rolls largely contributing to income inequalities. The point is that religious organizations can and do espouse doctrines of intolerance and hatred, filter funds to foreign enemies ( countries). They are nevertheless tax-exempt, their finances never scrutinized, because they qualify as "religious organizations." Tax-exempt status is a privilege - not a right - and churches should be held to the same standards as other non-profits - if not higher standards.

  

A case study of a  Pentecostal  church in town, in the last month, it made 1, 0004, 000 Us dollars on what they called MMO (“My miracle offering”) and they claimed that their motive was to spend it in Israel, Southern Sudan among other countries, that’s fine a good motive but how much of it will be spent otherwise and go un taxed, on top of that, its economically irrational to see that money is collected in Uganda and being spent or taken outside the country that’s already a leakage and its contributing to our own capital outflow?. In the year 2008, the commissioner for Domestic taxes in his speech while in a conference suggested that religious organizations should have clearly audited books, filled returns and their surplus be taxed, this raised many criticisms but thinking the other way round not the obvious, he had a point, The Revenue collection in the financial year 2011/12 fell short by around 7 billion Uganda shillings and this may be partly because the taxable base is small, if we are to fill that difference we have to expand the base and the church would be such a good rescue, Any Money that Is not spent as per their motive be taxed and assets contribute to property tax.

Because it is easily and routinely abused( The tax Exemption). Consider the proliferation of phony churches as a tax dodge. An IRS attorney cites a brothel "church," where sisterly love is offered to male parishioners in exchange for donations. In Hardenburgh, New York several years ago, 235 of the 239 property owners in that town were granted religious tax exemption because the properties of the owners were made branches of the mail-order "Universal Life Church." In Wisconsin, hotels pay parking lots, farms, and communion wafer bakeries are among the church holdings that are tax exempt. Overall, at least $4.2 billion in tax-exempt religious property now exists in that state alone. It's a racket, and it costs taxpayers even more money to monitor, uncover and fight the abuse it invites - none of which would be necessary if such unenforceable loopholes in our tax code never existed. Many Pastor Drive “High End” cars, have powerful houses and dress in imported suits, make frequent first class travels and more than 70% of their congregation are starving and on Foot, what’s Godly in that, Jesus him self was humiliated so that Man can be raised and  that that’s the man we(the pastors) claim to be following. Lets practice what we preach but not the famous coward saying that “do what I say but not as I do”

It costs you and me billions of shillings. Consider that for every tax dollar/shilling a religious organization does not pay, you and I pay it on its behalf either directly or indirectly and on top of that its us that contribute to the dollars they made, you observe a double loss in this scenario. Many are among the wealthiest organizations in the world: by 1971, the amount of real and personal property owned by U.S. churches was approx. $110 billion. In New York City alone, the amount was $3 billion in 1989. A 1986 estimate showed religious income in that year of approx. $100 billion, or about five times the income of the five largest corporations in the U.S.  All tax free. Ask your self these questions, should the taxes of non-religious citizens be higher to subsidize every church, synagogue, and mosque in town? Should working women pay taxes to subsidize clergy and other employees' paychecks, when such positions are overwhelmingly - and legally - restricted to men? Because it makes no sense to deny that tax exemption is a meaningful public subsidy is to put forth an absurd proposition: just consider what your personal financial picture would look like if you never paid any taxes. Yet it is exactly this type of ludicrous logic on which religious tax exemptions have been upheld time and again by our courts.

In conclusion, Non-taxation of Pentecostals is regarded as tax inequality between Pentecostals and business organizations in the country taxation of Pentecostals would increase government income and also reduce the tax burden of other non-tax exempt organizations in the country.

Am suggesting that URA should provide legislation that would make Pentecostals operate in an environment of increasing regulation and scrutiny. This will check the unethical conducts of Pentecostal pastors. Alternatively Pentecostals should be registered and governed under the Trustee Incorporated Act. The trustees should be people of impeccable character other than the pastors. According to the Act, the trustees are responsible for the properties that come into their hands and are answerable and accountable for their own acts, receipts, neglects and defaults. This will impose strict regime of accountability and protect the activity and integrity of Pentecostals in the country. The current scheme is unfair and unnecessary. Pentecostal Churches can and should pay taxes just like everybody else.

For God and My Country.

Andrew Kyambadde M.

Monetary Economist.

will the Market ever trust Mutebile Again?

Will the market ever trust Mutebile again?

In any case he seems to have run out of ideas that can manage an economy that is out of the reform phase

Conventional monetary economics teaches us that financial markets are by configuration very volatile. Empirical evidence shows that exchange rates are more volatile than the underlying economic variables. Yet exchange rate volatility is dangerous because it makes it difficult to plan economic activities, and also destroys confidence in the currency of a country.

Although market fundamentals can explain changes in long run exchange rates, it is the market expectations that explain changes in short run exchange rates. It is factors such as speculative opinion about future exchange rates, rumours of political instability or uncertainty, loss of confidence in profitability of economic enterprises, real interest rate differentials, and market psychology that dictate currency movements in the short run.  

Over the past twelve months, our shilling has undergone a speculative attack because of the sudden change in exchange rate expectations. Since the February general elections last year, market expectations, fed by political and economic unrest and uncertainty, have worsened speculation leading to more volatility in our financial markets.

This forced Bank of Uganda (BOU) to deplete reserves making the country more vulnerable to speculation and exchange rate overshooting. The market expectations were further worsened by Governor, Emmanuel Tumusiime-Mutebile's media utterances when he told the Financial Times of the UK that government had raided the Treasury, took off with about two months of the country's reserves to purchase fighter jets. Although Mutebile later denied having let out government secrets to the media, only novices could accept his denials.

The shilling is sinking
In his characteristic style, Mutebile told the Financial Times whatever he told them as a way of letting the blame for the deteriorating economy off his sleeves, to the attention of his "friends" at the IMF and the World Bank. Little did he know that speculators were out to take advantage of such reckless utterances and drive our shilling to a record low!

The shilling sank so low, to the gladness of the political animals that this country has bred in crowds and soon the rumour mill was running in gear number five thus, "Mutebile has resigned as BOU Governor." The social network prophets of doom took the opportunity of the resignation of the Afghanistan's Central Bank Governor at the time to get their message home. The pit in which the shilling was falling could only become deeper.

In these very pages, I wrote asking, "Who of the two -- Government and Bank of Uganda -- should we blame for our worsening economic situation?" The BOU's continued claim that it had done enough to keep inflation under check, implied that it was government's fiscal policy that was letting the economy down.

Nevertheless inflation and exchange rate depreciation recently peaked and started to lessen. Then the Basajjabalaba saga came up and once again, our central bank Governor was in the press for the wrong reasons. 

No longer the super Governor
Parliament has been consistent in demanding for his resignation for his role in the Basajjabalaba saga. Mutebile, typical of him, faced the cameras and roared, "Only God can take me out of this chair." He went ahead to asked the market players to ignore "the ramblings in Parliament" because "I am here to stay." Indeed after a heated debate in Parliament, the votes were cast and Mutebile was saved by a visibly divided legislature.

Well, cabinet may have succeeded in defending the Governor but will the market ever trust him again? We all know that the position of Governor is critical as far as the health of the macroeconomy of any country is concerned.

Mutebile has been a very successful Governor in the last decade mainly because everyone, literary everyone - from the executive to parliament to the general public and the development partners - had confidence in him. He has been a super Governor. Can he still enjoy this confidence? 

The other night when I was watching news on a local television I heard a number of our Members of Parliament, the few patriots championing the battle against corruption, asking "When Mutebile says he is going nowhere because if he goes the economy would be affected; was this economy invented by Mutebile?"

Mutebile's sleek record
My answer to them is a big YES. It is Mutebile who in 1987, together with a few of his colleagues at the then Ministry of Planning and some expatriates, authored the famous Economic Recovery Programme (ERP) that marked the beginning of the emergence of the Ugandan Economy we are witnessing today. At the time the Mutebiles authored this program, inflation had reached 358.4%, poverty was at 56.7% and the GDP growth of 1.1% was largely driven by the subsistence sector.

Mr. President, I trust you remember how in 1986 your Marxist economic policies had worsened the already bad economic spell Uganda had faced at the hands of Amin and Obote II.  It is Mutebile who restored both fiscal and monetary discipline; agitated for liberalisation of consumer and producer prices to eliminate distortions such as price controls, black markets, high tariffs, smuggling, excessive printing of money to finance fiscal deficits and fixed exchange rate regime.

It is Mutebile who in 1990 wrote the "Way Forward 1", a macroeconomic strategy he authored while working as Permanent Secretary of the then Ministry for Planning and Economic Development.

This policy paper forever changed the face of the economy of Uganda. In his typical arrogant tone, Mutebile asked you Mr. President and your cabinet to choose between failing the economy under the weight of fiscal indiscipline or work for full and sustainable recovery by stopping NRM's thriftlessness.

It is Mutebile who proposed five key reforms that provided a pebble upon which this economy has been built in the last two or so decades. These are:     

(1)    Merger of Ministry of Finance (MoF) with Ministry of Planning and Economic Development (MoPED) in 1992 to ensure fiscal discipline,

(2)    Granting of independence to the Bank of Uganda through three legislations -- the 1993 BoU Statute, the 1993 Financial Institutions Statute, and the 1995 Constitution,

(3)    Setting up of Uganda Revenue Authority (URA) in 1991 to improve revenue administration,

(4)    Setting up of Uganda Investment Authority (UIA) to administer the Investment Code, and

(5)    Abolition of taxes on export goods

Mr President, without question you agreed to implement these reforms and appointed Mutebile the PS of the newly created Ministry of Finance, Planning and Economic Development to execute the task, until he became the Governor. We all know what these reforms have done for this country. That is how critical Mutebile's contribution to the resurgence of our economy has been.

His economics inapt in post-reform
However, as I wrote in these pages back in 2010 when you, Mr President, renewed Mutebile's contract to give him a third term, the embattled Governor has outlived his usefulness.
He seems to have lost ground to the changing times. Certainly he was at his prime in the 1990s and early 2000s. He seems to have run out of ideas to manage an economy that is out of the reform phase.

We need new blood at BOU and Finance. Luckily, in Louis Kasekende, Mutebile's deputy, we seem to possess a guy better suited to guide the post-reform economy into take-off. He was a star performer at the World Bank where between 2002 and 2004 served as Executive Director before having a three-year distinguished service at African Development Bank as Chief Economist.

I am told that actually there is an ideological cold war at BOU between Mutebile and his deputy. The latter, with support from a good number of other top brains at the Bank, believe that the former is still frozen in the past; agitating for policies and economic ideologies which are not in agreement with today's economic realities.

So could this be the time we prepare for his exit? But as we do so we need to be careful on the timing, tactics, and methodology we employ to uproot this monetary fundamentalist out of this critical seat. That is why I supported government when you protected him against the reckless method of operation by Parliament. That is not how they sack a central bank Governor. You may sack a Syda Bumba or a Kabakumba Matsiko using the method parliament used but not the chief guardian of the economy.

Nevertheless, the bottom line remains that we must prepare the post-Mutebile Uganda because sooner or later he has to leave that position. He has lost the confidence he exuded in the last couple of decades. Our financial markets are now vulnerable to speculative volatility owing to the likely continued onslaught on the man with divine right to print and keep our money!