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ELECTRONIC TAX MANAGEMENT STRATEGIES AND REVENUE PERFORMANCE

UGANDA REVENUE AUTHORITY

CHAPTER ONE: GENERAL INTRODUCTION

This chapter will cover background to the study, statement of the problem, objectives of the study, research hypotheses, scope of the study, justification of the study, definition of key terms and conceptual framework

• Background

This section presents the background of study in areas of Historical background of the study, theoretical background, conceptual and contextual background.

1.1.1 Historical background of the study

The history of governments being concerned about Tax revenue performance dates back to ancient civilizations, where taxes were collected in the form of goods or labor. In ancient Mesopotamia, taxes were collected in the form of crops and livestock. In ancient Egypt, taxes were collected in the form of labor, with citizens required to work on public projects. In ancient Greece and Rome, citizens were required to pay taxes in the form of money, which was used to fund public goods and services. During the Middle Ages, European monarchs began to establish more centralized systems of revenue collection, with the creation of professional tax collectors and the introduction of new taxes, such as the poll tax and the land tax. In the 18th and 19th centuries, many countries, such as the United States, established more formal systems of revenue collection with the creation of income taxes and other forms of direct taxation. In the 20th century, many countries began to rely more heavily on indirect taxes, such as sales taxes and value-added taxes (VAT), as a means of revenue collection. Today, most countries use a combination of direct and indirect taxes to fund government spending. Revenue collection also shifted from primarily local and regional collection to centralized collection through the creation of national tax agencies (Faccia, & Mosteanu, 2019).

Electronic tax management dates back to the late 1960s and early 1970s, when the first electronic tax filing systems were developed. These early systems were primarily used by large corporations and required the use of mainframe computers and specialized software. In the 1980s, the development of personal computers and the increasing availability of computer software made it possible for smaller businesses and individuals to file their taxes electronically. The IRS (Internal Revenue Service) started to accept electronic tax filings from individuals through the Electronic Filing Tax Program (ELF) in 1986. In the 1990s, the IRS continued to expand its electronic filing options, making it possible for tax professionals to file returns electronically on behalf of their clients and for more taxpayers to file their returns online. The IRS also began to offer online services for taxpayers, such as the ability to check the status of their refunds and make payments online (Efobi, Beecroft, Belmondo, & Katan, 2019).

In recent years, the use of electronic tax management systems has become increasingly popular, and the IRS now receives the majority of individual tax returns electronically. With the development of technology and the growing use of cloud-based software, the process of filing and paying taxes has become more convenient and efficient (Chindengwike, 2022).

The evolution of electronic tax management systems technologies has been a gradual process over the centuries. Initially, tax collection was done manually, with tax collectors going door-to-door to collect taxes in the form of goods or labor. As economies became more monetized and taxes were collected in the form of money, manual methods of tax collection were replaced by more efficient methods such as the use of tax books and ledgers. In the 19th century, the introduction of the income tax in countries such as the United States led to the development of more sophisticated methods of tax collection, such as the use of tax forms and the establishment of tax-collecting agencies. With the advent of computers and the internet, tax collection technologies have become increasingly digitized. Today, most countries have online systems for filing and paying taxes, and many tax agencies use data analytics and other advanced technologies to detect and prevent tax evasion. The use of Electronic Filing and Payment (EFP) systems are increasing and mandatory in some countries as it allow taxpayers to file and pay their taxes electronically. This not only improves the speed and accuracy of tax collection, but also reduces the burden on taxpayers and tax agencies. Another development is the use of blockchain technology in tax collection. Blockchain allows for secure and transparent record keeping of transactions and can potentially improve the efficiency and effectiveness of tax collection (Naveed et al., 2019).

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The use of technology in collecting taxes has become increasingly important in recent years, as it allows for more efficient and accurate tax collection. The main ways in which technology is used for tax collection include: Electronic filing and payment systems: Taxpayers can use online systems to file and pay their taxes electronically, which improves the speed and accuracy of tax collection and reduces the burden on taxpayers and tax agencies. Data analytics: Tax agencies use data analytics to detect and prevent tax evasion. By analyzing large amounts of data, tax agencies can identify patterns and anomalies that may indicate tax evasion. Blockchain technology: Blockchain is a distributed ledger technology that allows for secure and transparent record keeping of transactions, this technology can potentially be used to improve the efficiency and effectiveness of tax collection by providing a tamper-proof record of transactions, Automated systems: Tax agencies use automated systems to process and analyze tax returns, which reduces the need for manual labor and increases the speed and accuracy of tax collection. Artificial Intelligence and Machine Learning: AI and ML systems are increasingly used to improve tax compliance and fraud detection, as well as to assist taxpayers with understanding and meeting their tax obligations (Soneka, & Phiri,  2019).

According to the International Monetary Fund (IMF), the average tax-to-GDP ratio for African countries is around 17%, which is lower than the global average of around 25%. However, there is significant variation among countries, with some countries having a tax-to-GDP ratio of over 30% and others having a ratio of less than 10%. In terms of specific countries, some African countries with high tax-to-GDP ratios include Botswana, Morocco, Tunisia, and South Africa. These countries have relatively well-developed economies, transparent and effective tax systems, and a high level of tax compliance. On the other hand, some African countries with low tax-to-GDP ratios include Somalia, Eritrea, and Burundi. These countries are characterized by poor economic development, fragile governance, and a lack of capacity to collect taxes. It’s worth mentioning that the tax collection in Africa is still low compared to other regions and there are efforts to improve the tax systems to increase the revenues (Moore, 2020).

In Uganda Analysis of revenue performance dates back to the colonial era, when the British government imposed various taxes on the population to fund their administration of the territory. During this time, taxes were primarily used to fund the operations of the colonial government and to support the development of infrastructure such as roads and railways. After Uganda gained independence in 1962, the government continued to rely on taxes as a primary source of revenue. The government also established a number of new taxes, such as the Value Added Tax (VAT) and the Excise Duty Tax, to support the development of the country’s infrastructure and services. In the 1980s and 1990s, Uganda’s economy faced significant challenges due to war and political instability, which resulted in a decline in tax revenues. However, after the return of political stability in the 2000s, the government made efforts to improve the tax system and increase revenue collection. Today, Uganda’s tax system is governed by the Uganda Revenue Authority (URA), which is responsible for the administration of taxes, including income tax, value-added tax, and excise duty. The government has also introduced various tax incentives to attract foreign investment and support the growth of the country’s economy (Efobi et al., 2019).

In recent years, the Ugandan government has been focusing on improving the tax compliance and widening the tax base through technology, digitalization and education. The government has also been working to reduce the administrative burden on taxpayers and increase transparency in the tax system (Kangave et al., 2016).

1.1.2 Theoretical background

This study in understanding electronic tax management strategies and revenue performance in Uganda, the study will adopt Tax Base theory as proposed by, Charles 0. Galvin, 1960s.

The tax base theory is a principle that states that the tax base, or the items or activities subject to taxation, should be as broad as possible to ensure that everyone pays their fair share. This means that a variety of goods and services should be taxed to ensure that everyone pays their fair share.

The goal of the tax base theory is to create a system that is fair and efficient. By having a broad tax base, the burden of taxes is spread among a larger group of taxpayers, which reduces the burden on any one individual or group. A broad tax base also helps to prevent tax evasion and tax avoidance, as there are fewer opportunities for taxpayers to avoid paying taxes.

Examples of a broad tax base include income taxes, sales taxes, and property taxes. These types of taxes apply to a wide range of individuals and businesses, and can be used to generate revenue for government services.

In practice, governments often use a combination of different tax bases, including progressive income taxes, consumption taxes, and property taxes, in order to achieve a fair and efficient system.

Some of the challenges this theory faces include; Determining the appropriate tax base: There is often debate over which items or activities should be included in the tax base, as different bases can lead to different levels of revenue and different distributional impacts, Measuring the tax base: Even if the appropriate tax base is agreed upon, it can be difficult to accurately measure and value it. For example, determining the value of land or natural resources can be challenging, Tax base erosion and shifting: Businesses and individuals can often find ways to avoid or evade taxes by shifting their activities or assets to jurisdictions with lower tax rates. This can erode the tax base and reduce revenue, Addressing the issue of fairness: Tax base theory should aim to create a fair and efficient tax system and However, this can be difficult to achieve as different individuals and businesses have different abilities to pay taxes.

Keeping up with changes in the economy: Tax base theory should be flexible enough to adapt to changes in the economy, such as new technologies or changing business models. This can be challenging as the economy is constantly evolving.

1.1.3 Conceptual Frame Work

Electronic tax management refers to the use of technology and digital tools to manage the process of filing and paying taxes. It includes the use of software and online systems to prepare and file tax returns, as well as pay taxes, and track the status of tax payments. Electronic tax management systems can automate many of the tasks associated with tax compliance, such as calculating tax liability, generating reports, and submitting returns. These systems can also provide real-time data on tax obligations, which can help businesses to stay compliant with tax laws and regulations. Electronic tax management can improve the accuracy and efficiency of the tax management process, and also make it easier for businesses to comply with tax laws and regulations (Daniel, & Esther, 2019).

Electronic tax management can also be defined as the use of technology and digital tools to manage the process of filing and paying taxes. This can include using software to prepare and file tax returns electronically, as well as online systems for paying taxes and tracking the status of tax payments. Electronic tax management can also include the use of digital tools for tracking expenses, generating financial reports, and analyzing tax data. The use of electronic systems can make the tax management process more efficient and accurate, and can also make it easier to comply with tax laws and regulations (Wang, 2019).

Tax management refers to the process of planning and organizing one’s financial affairs in a way that minimizes the amount of taxes that must be paid. This can involve strategies such as maximizing deductions, taking advantage of tax credits, and structuring investments in a tax-efficient manner. Tax management can also include staying informed about changes in tax laws and regulations, and seeking the advice of a tax professional when necessary.

Revenue is the income that a business or organization receives from its normal business activities, typically in the form of money, but it can also include other assets. It is the total amount of money that a company earns by selling its products or services. Revenue is considered the top line item on an income statement and is often used as a measure of a company’s overall financial performance. It is important to note that revenue is different from profit, which is calculated by subtracting all expenses from revenue. Revenue is also different from cash flow, which measures the amount of cash coming into and going out of a business (Seraphin, & Ivanov, 2020).

Revenue performance refers to the level of success that a business or organization is able to achieve in generating income from its normal business activities. It is a measure of how well a company is able to sell its products or services and convert those sales into revenue. Revenue performance is often used as an indicator of a company’s overall financial health and can be used to evaluate the effectiveness of the company’s sales, marketing, and pricing strategies. It can also be used to compare the performance of a company with that of its competitors. Revenue performance is typically tracked over time and can be used to identify trends and make predictions about future performance.

Performance management is the process of evaluating and improving the performance of individuals, teams, and organizations. It involves setting goals, establishing performance standards, monitoring progress, and providing feedback and coaching. Performance management can be applied to both individual employees and teams and can be used to evaluate performance in relation to specific tasks, projects, or overall organizational goals. It can include activities such as goal setting, performance appraisal, training and development, and the provision of rewards and incentives. It is a continuous process that helps organizations to align goals, measure progress, and make data-driven decisions. Performance management is often used as a tool for increasing productivity, improving efficiency, and achieving long-term organizational success (Ammirato et al., 2020).

1.2.4 Contextual background

According to the URA, (2021) Report indicates that last Financial Year 2021-22, URA collected UGX 21,659.44 billion the biggest collection in the history of our country. The revenue grew by 12.44 percent as compared to collections for FY 2020/21, which reflects a nominal growth in revenue of UGX 2,396.44 billion. However, the outturn for the year saw a net revenue collection of UGX 21,659.44 billion, short of UGX 704 billion against a target of UGX 22,363.51 billion.

The growth in revenue performance for the financial year is attributed to measures such as arrears management, expansion of the register currently at more than 2.5 million taxpayers, country wide customs enforcement initiatives, alternative dispute resolution, tax investigation initiatives among others. Domestic Taxes collections were UGX 13,664.65 billion against a target of UGX 14,662.13 billion, registering a deficit of UGX 997.48 billion and performance rate 93.20 percent. The domestic taxes collections grew by UGX 1,520.64 billion (12.52 percent) compared to last financial year.

The customs collections were UGX 8,434.36 billion against a target of UGX 8,140.49 billion, posting a surplus of UGX 294.63 billion and registering a performance of 103.62 percent. The customs collections also grew by UGX 929.25 billion compared to last financial year, with the FY2022/23 target of UGX 25.1 trillion at hand, the Commissioner General unveiled a number of key strategic measures that URA will undertake to support taxpayers to comply but also get our country out of the shame of economic dependence, and poverty (URA, 2022)

Government did not introduce any new taxes in Financial Year 2022/23 due to the need to foster speedy economic recovery. However, there are amendments in the tax legislation intended to provide clarification on ambiguous provisions and close loopholes that may lead to revenue leakage, URA will also roll out an intensive taxpayer education programme, improve service delivery, and promote transparency. This will be implemented through stakeholder collaboration especially in areas of information exchange, and third-party data integration and analysis to identify unregistered persons to expand the tax register.

In order to increase accessibility of services, URA utilise mobile tax services through the Tujenge Uganda, a mobile outreach bus that extends outreach services to taxpayers especially in areas where we do not have physical presence. URA also has acquired the second outreach bus, is the third African tax authority, after South Africa and Kenya, to launch this kind of automobile aimed at drumming up efforts to grow the tax register to at least 5 million taxpayers by 2024/25.

URA also focuses on championing process improvement using key technologies such as Electronic Fiscal Receipting & Invoicing Solution(EFRIS) and Digital Tax Stamps (DTS) to improve business efficiencies and combat revenue leakage. URA continues to advocate for faster tax dispute resolution through the Alternative Dispute Resolution (ADR) platform. This is a win-win for the tax authority and the taxpayer saving both parties legal costs and time.  We are stepping up the use of Cargo Tracking Systems, and Non-Intrusive Inspection Technologies to facilitate trade.

Table below showing the deficits and target of Uganda Revenue Authority

Uganda Revenue Authority adopted electronic tax management strategies to enable it in the management of the revenue collection however, it has been facing deficits in its collection as indicated in the table above. Uganda Revenue Authority has employed Information systems in the collection of taxes to ensure that there is compliance among the tax payers because of the user friendly systems like E-registration, e-taxation, e-Tin registration, and e-payments to reduce on the collection deficits (Kabafuzaki, 2010). Uganda Revenue Authority has continued to receive budget deficits which has been shown by the financial years 2015/2016 and 2016/2017. It has accumulated total deficits of 862 billion Ugandan shilling from 2015 to 2017 despite implementing electronic tax management strategies for the last five years.

1.2 Statement of the problem

URA adopted Electronic Tax Management Strategies in 2003 into the in all its tax collection department to increase revenue collection, improve quality of administration, reduce costs of compliance and provide services to the tax payers all the time from anywhere (Kangave et al., 2016), however despite the adoption of Electronic Tax Management by URA in 2010, it is still faced with numerous challenges like failure to hit revenue collection targets set by Ministry of finance its supervision ministry. According to the URA, (2022) report, Uganda Revenue Authority was given a revenue target, by the Ministry of Finance, Planning and Economic Development, of UGX 22,363.51 billion which is 16.10% (UGX 3,100.51) higher than the actual revenue collection from the last financial year. As a result, in the last six months, URA projected to collect 49.47% representing UGX 11,063.90 billion, an increase of 16.80% (UGX 1,591.43 billion) from the realized revenue for the same period last financial year (Uganda Revenue Authority, 2022). The net revenue collections for the first 6 months of this FY 2021/22 were UGX 10,163.09 billion against a target of UGX 11,063.90 billion, representing 45.44% of the annual target. A shortfall of UGX 900.81 billion was incurred with a performance of 91.86%. Customs tax collections in the first 6 months of the FY 2021/22 were UGX 4,076.18 billion against a target of UGX 4,102.51 billion, posting a shortfall of UGX 26.33 billion, and performance of 99.36%. However, a year to year growth of UGX 389.78 billion (10.57%) was realized this year compared to the same period in the previous Financial year 2020/21. The domestic revenue collections in the FY 2020/21 were UGX 12,144.01 billion, registering a growth of 13.71% (UGX 1,464.19 billion in real terms) in comparison to the FY 2019/20. However, the collections were below the target of UGX 14,038.18 billion by UGX 1,894.18 billion. It is against this Background that this study intends to investigate into electronic tax management strategies and revenue performance

1.3   General objective of the study

The general objective of the study is to examine the influence of electronic tax management strategies and revenue performance in Uganda.

1.4   Research Objectives

This study will be guided by the following research objectives;

1. To examine the influence of electronic tax filings on revenue performance.
2. To investigate the influence of Electronic tax payments on revenue performance.

• To examine the influence on the influence of Electronic invoicing and receipting on revenue performance.

1.4.1 Research question

1. What is the influence of electronic tax filings on revenue performance?
2. What is the influence of Electronic tax payments on revenue performance?

• What is the influence on the influence of Electronic invoicing and receipting on revenue performance?

1.5 Research hypotheses

This study aims at answering the following research hypotheses

H1: There is no significant influence of electronic tax filings on revenue performance.

H2: there is no relationship between Electronic tax payments and revenue performance.

H3: There is a strong influence of Electronic invoicing and receipting on revenue performance.

1.6 Justification of the study

The study will be carried out because of the following reasons. Uganda revenue authority being a tax collection body is responsible to deliver the targets and enable the government to meet its expenses.

Revenue collection remains a key challenge in African and Uganda in particular (Mukunda, 2017). This is mainly on account of limited tax compliance. In the last three decades, Uganda has embarked on improvements to broaden the tax base and increasing domestic revenue mobilization. Modernizing the tax administration systems is among the initiatives (World Bank, 2018b). In comparison with regional neighbours, Uganda’s tax revenue to GDP is still below the 16 per cent Sub-Saharan average and lags behind her East African Community (EAC) neighbors too (World Bank, 2018b).

1.7 Significance of the study

The findings of the study are expected to be significant in the following ways;

This study is intended to provide policy makers, that is the Ministry of Finance Planning and Economic Development and tax law makers in parliament insights to base any possible amendments to suit the local needs. This will drive voluntary compliance among tax payers.

The Uganda Revenue Authority has so far tried several means to enforce tax compliance. This study will provide additional information to URA to understand how best to enhance tax compliance among business.

To other researchers, it is important to tell the nature of the relationship between tax administration systems and tax compliance, thus this study will provide a current reference material.

To the researcher, this study will boost the knowledge on taxation and hence be a milestone in the career growth as well as academic achievements.

1.8   Scope of the study

The scope of this study will be confined to the geographical, subject and time scope. The study will concentrate on tax audit and tax evasion control and will be carried out from Uganda Revenue Authority (URA). URA is one of the subsections under the Ministry of finance and it is located at plot 95 Kampala road, Nakawa Industrial Area, Kampala, Uganda. URA is found in Nakawa Division of the city of Kampala, approximately 6.5 kilometers (4 miles), by road, east of the city centre, off of the Kampala-Jinja Highway.

The period of data to be considered from Uganda Revenue Authority will be from 2017 to 2022 this is because, during this period, Uganda Revenue Authority adopted several strategies to enhance its tax auditing strategies.

1.9 Organization of the study

The study will describe the Background, the problem statement, objectives of the study, research questions, research hypothesis, significance of the study, scope of the study justification of the study and organization of the study.

1.9. Justification of the study

Numerous studies have emerged concerning e-tax systems and their contribution to tax compliance and revenue performance.  Haryani et al. (2015),  Wasao (2014), Muturi and Kiarie, 2015). Maisiba and Atambo (2016); Simuyu and Jagongo, (2019); Ondara et al., (2016). It can be noted that, these studies were conducted outside Ugandan context which leaves a literature gap which this study intends to address. A study by Night and Bananuka,. (2020) examined the mediating role of adoption of an electronic tax system in the relationship between attitude towards electronic tax system and tax compliance; Nakitende (2019) focused on electronic tax system and tax compliance. These studies focused on electronic tax systems and tax compliance and did not focus on how e-tax strategies contribute to performance at Uganda Revenue Authority.

Thus, the purpose of this study is to examine how e-tax strategies has enhanced revenue performance at Uganda Revenue Authority.

1.10   Scope of the Study

The scope of the study includes the geographical scope, content scope and time scope.

1.10.1. Geographical Scope

The study will be carried out at Uganda Revenue Authority headquarters at Nakawa in Kampala. This case study was chosen because URA has reported on how internal controls have helped the organization achieve effective revenue performance.

1.10.2 Subject and content scope

The content of the study will focus on e-tax strategies and revenue performance. This will involve doing an assessment on how e-tax payments, e-tax filling, electronic invoicing and receipting influence revenue performance.

1.10.3 Time scope

This study covered a period of five financial years from 2018/2019, 2019/20, 2021/22. This period was considered because it was the period when URA increasingly rolled out e-tax strategies.

1.11. Operational Definitions of key terms

Electronic tax systems: This refers to the practice of using electronic means to file tax returns, carry out tax payments and issue electronic receipts and invoices.

Revenue Performance: This is a measure of an organizational revenue performance in terms of quarterly and annual tax collection.

1.12 Conceptual Framework

    Independent variable                                                           Dependent Variable                                             

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