Research consultancy

Research consultancy

CHAPTER ONE: BACKGROUND AND CONTEXT

1.1 Background to the Study

Governments in developing countries strive to stimulate and sustain economic growth, yet revenue collection remains a critical challenge. Taxation is a primary source of government revenue, funding public goods, infrastructure, and regulatory functions (Kaldor, 2011). However, many Least Developed Countries (LDCs), including Uganda, struggle with low revenue mobilization, hindering development (Corbacho, 2013). Effective tax policies are essential for domestic resource mobilization (Morrissey, 2015).

In Uganda, income tax applies to individuals, corporations, and entities earning income within the country. Despite reforms such as taxpayer education and expanded registration, Uganda’s tax-to-GDP ratio remains low compared to regional peers (Jellema, 2016). Challenges include a narrow tax base, evasion, and weak enforcement (Ali, 2014).

1.2 Statement of the Problem

While tax education positively influences compliance (Stiglitz, 2015), Uganda’s revenue performance lags behind neighboring countries. Despite URA’s taxpayer sensitization efforts, income tax compliance remains low (Ayoki, 2007). Hostility between taxpayers and authorities further complicates revenue collection (Mawejje, 2014). This study investigates how tax education impacts income tax performance in Uganda.

1.3 Objectives of the Study

Main Objective:
To examine the effect of tax education on income tax performance in Uganda.

Specific Objectives:

1. To evaluate the level of tax education in Uganda.
2. To analyze annual income tax revenue trends.
3. To identify determinants of income tax performance.
4. To propose policy improvements for income tax efficiency.

1.4 Research Questions

1. What is the current level of tax education in Uganda?
2. How much income tax revenue is collected annually?
3. What factors influence income tax performance?
4. What policies can enhance income tax efficiency?

1.5 Scope of the Study

• Content Scope: Tax education, income tax performance, and policy recommendations.
• Geographical Scope: URA Nakawa, Kampala.
• Time Scope: July 2006–May 2007 (a period of low income tax revenue).

1.6 Significance of the Study

• Provides insights for policymakers and URA management.
• Informs future research on tax compliance and revenue administration.

CHAPTER TWO: LITERATURE REVIEW

2.1 Introduction

This chapter reviews existing literature on tax education, revenue performance, and compliance strategies.

2.2 Level of Tax Education in Uganda

Taxpayer education promotes voluntary compliance by clarifying obligations and rights (Oyedele, 2009). URA conducts workshops, media campaigns, and taxpayer appreciation days to enhance awareness (Kianuka et al., 2007). Studies show that informed taxpayers are more likely to comply (Normala, 2007).

2.3 Annual Income Tax Revenue in Uganda

URA data (2016) indicates significant under-declaration of taxes, particularly in customs and VAT. Despite reforms, Uganda’s tax-to-GDP ratio (12.5–12.9%) trails Kenya, Tanzania, and Rwanda.

2.4 Determinants of Income Tax Performance

1. Tax Knowledge: Awareness improves compliance (Kasipillai et al., 2003).
2. Penalties: Deterrence works best with frequent audits (Kirchler, 2007).
3. Evasion Opportunities: Cash-based economies face higher evasion risks (Williams & Round, 2009).
4. Policy Complexity: Simplified tax systems reduce compliance costs (Tanzi & Zee, 2000).

2.5 Policy Recommendations

• Reforms: Simplify tax laws and broaden the tax base.
• Administration: Strengthen enforcement and reduce exemptions.
• Technology: Leverage ICT for efficient revenue collection.

Conclusion

The study highlights the need for continuous taxpayer education, fair policies, and institutional capacity building to improve Uganda’s income tax performance. Future research should explore ICT’s role in tax administration and economic influences on compliance.