ABSTRACT

The topic of study was the effect of tax education on income tax performance, a case study of Uganda revenue authority, the objectives of the study were; To establish the level of tax education in Uganda, to establish the annual income tax revenue collected in Uganda, to investigate the determinants of income tax performance in Uganda, and to recommend policies for improving the performance of income tax in Uganda.

The research design in the study was mainly Qualitative and quantitative research designs were used. The researcher used the above method because many aspects were covered in the study concerning the income tax performance in Uganda URA Nakawa. The study was carried out in URA Nakawa. It was conducted among only URA staff and the study targeted officials from finance department, ICT department, accountants and auditors.

According to the findings in the study indicates that URA conducts training on the new tax policies to both staff and clients, the results in the study further indicate that URA educates the citizens on tax policies, URA clients are aware of the tax policies, this shows that URA has taken an initiative of educating the tax payers about taxes, the tax policies by URA are fair to clients these results also indicates that the Uganda revenue authority is considerate of the average tax payer, the study further indicates that Uganda revenue authority imposes Fines and Penalties in case an individual has disobeyed the tax laws this shows that there are rules and consequences’ of disobedience incase of not following the Tax rules and lastly Improvement of the salary earning of government employees is essential in increasing on the amount of taxes paid by employees.

The study recommends that URA should conduct trainings on the new tax policies to both staff and clients, this helps to give clients information the new taxes that they are supposed to pay and possibly the increment if any, URA also needs to design taxes that are fair to clients to be in position to have a better performance of the authority and staff as well. The study also further recommends that government should strengthen the business environment so that business people are able to pay taxes, lastly that URA as an organization also needs to be well equipped with enough staff and equipment to enable better performance of the organization.

The study made the following recommendation for areas of further study; The influence of the use of information and communication technology on the performance of URA staff, The influence of price of goods and service on the monetary value of Uganda’s currency and the challenges of modern technology on the performance of employees.

CHAPTER ONE: BACKGROUND AND CONTEXT

1.1 Background to the study

Governments for developing countries aim at stimulating, attaining and sustaining their economic development. However, several factors affect the growth and development goal of the developing countries. Among such factors is revenue collected by governments of these counties (Rondinelli, 2013). Importantly, (Kaldor, 2011) points out the importance of government revenue in accelerating economic development, for instance Tax is a major source of government revenue all over the world. Government use tax proceeds to render their traditional functions, such as provisions of public goods, maintenance of law and order, defense against external aggression, regulation of trade and business to ensure social and economic maintenance. However, lower revenue collection characterizes most Least Developed Countries (LDCs) and this has greatly hindered sustainable development for these economies (Corbacho, 2013). Consequently, emerging nations must increasingly mobilize their own internal resources to enhance economic growth and development (Wildford, 2013). Resource mobilization and collection is mostly influenced by the implementation of an effective tax policy (Morrissey, 2015).

Income Tax Performance in Uganda

According to income tax in Uganda applies generally to all types of persons who derive income, whether an individual, bodies of individuals, or corporate entities. Resident persons are taxed on worldwide income, while non – resident persons are taxed only on income derived from sources in Uganda. Income tax is imposed on three broad categories of income Business income, Employment income and Property income Kangave, (2016),

Vision 2040 contains reforms in all areas of tax policy. They emphasize the need to raise more revenue without increasing the burden of taxation on those who are already contributing to the exchequer. The tax measures contained in these documents consist of broadening the tax base to include additional sector activities and strengthen tax administration.

These measures were adopted after the government realized that the present tax structure does not raise adequate revenues. Moreover, external funds can no longer be relied on due to donor conditions and the increasing (Gelb, 2014). Furthermore, potential sources for domestic borrowing are few and external grants reduce autonomy and increase political and economic dependence. The alternatives are therefore to raise money through taxation, curtail desired government expenditures, or continuously revise the tax structure.

The main shortcoming of Uganda’s tax structure since independence has been its over- dependence on a small number of sources of tax revenue, namely trade taxes, sales tax/Income Tax and income tax (Wawire, 2015). The trade taxes, sales tax/Income Tax on various imported products are vulnerable to external events because their prices are determined in the world market and tend to be volatile. This has resulted in inadequate tax revenues and continuous existence of budget deficits.

the sources of inadequacy of revenue from taxation in Uganda include tax structure, a long time lag between government revenue collection and spending, lack of fiscal discipline, and reluctance of the government to control its expenditures, , this study intends to investigate into the effect of tax education on income tax performance a case study of URA Nakawa (Nzomoi,2013).

Tax Payer Education in Uganda

Taxpayers’ education can be described as a method of educating the people about the whole process of taxation and why they should pay tax. The education component is expected to deal with non-compliance practice among the taxpayers especially in the informal sector (Kimingu, 2007). Taxpayer education program serves to: create taxpayer awareness of laws and procedures, educate taxpayers on their tax responsibilities and rights, assist and Income Tax taxpayers to comply voluntarily, assist taxpayers on reporting the correct income and amount of tax, maintaining close relationship between the tax authority and the taxpayer continuously, and, instill public confidence in taxation system (Oyedele, 2009). Thus, tax education enables the taxpayer to understand tax laws and procedures as well as creating positive tax compliance attitude (Normala, 2007).

1.2 Statement of the Problem

It’s generally agreed that there exists strong positive relationship between tax education and the performance of income tax revenue (Stiglitz, 2015). Countries that have educated their tax payers about the importance of complying with tax laws and paying of their taxes, have registered high levels of income tax revenue collection (Slemrod,2016) Although achieving tax compliance and improving revenue generation is not an easy task (Kimungu, 2007). These countries with better tax education have developed at a faster rate relative to countries whose tax education is poor (Tanzi, 2016).

Consequently, failure of the citizens to understand the taxation system, leads to less compliance and slows down growth. This is because most people will avoid paying taxes because they don’t know what they should pay and why they should pay (Atawodi, 2012). Educating people about the whole process of taxation and why they should pay tax will encourage compliance.

Countries like Ghana and Nigeria Realized increment in tax compliance after carrying out massive tax education reforms. Ghana for example opened up The Chartered Institute of Taxation, to promote the study of taxation and regulate the practice of taxation in Ghana. It which helped to educate many Ghanaians about the value of taxation prompting them to comply.

In the previous five financial years, the tax collector URA recorded surpluses three times and in the two occasioned where it registered a deficit, URA revenue records indicates that the tax collection overall improved compared to the same period previously. According to URA data, the targeted collection for the Financial Year 2015/16 was Shs11.3 trillion. In the first nine months (of the current FY), total net revenue collections were Shs8.1 trillion, with a deficit of nearly Shs195 billion. Low compliance, poor tax education, poor enforcement and several tax exemptions in Uganda’s tax laws explain the country’s narrow tax base(Ali, 2014). Consequently, the country’s tax burden is borne by a very small proportion of the population primarily the large formal sector firms, government and private sector employees.

This suggests that Uganda’s low income tax compliance (Ayoki, 2007) has contributed to low revenue collection (cite reference too). Further, (Mawejje, 2014) argue that Uganda has seen hostility between the taxpayers and tax collectors on issue relating to income tax compliance and even tax evasion cases.

Uganda’s tax policy has carried out tax reforms including Massive taxpayer sensitization and education on tax policy changes, strengthening international taxation (multinationals) function, expanding taxpayer registration and expansion programme outside greater Kampala, expand rental registration outside Kampala, among other reforms but despite that, Uganda’s revenue collection is among the lowest in the East African region(Jellema, 2016). Therefore it is upon this background that this study intends to investigate the effect of tax education on income tax performance in Uganda.

1.3 Objectives of the Study:

Major Objective

To investigate the effect of tax education on income tax performance in Uganda.

Specific Objectives

To establish the level of tax education in Uganda.

To establish the annual income tax revenue collected in Uganda
To investigate the determinants of income tax performance in Uganda
To recommend policies for improving the performance of income tax in Uganda

1.4 Research questions

What is the level of tax education in Uganda.
What is the annual income revenue collected in Uganda.

What are the determinants of income tax performance in Uganda.

What are the recommended policies for improving the performance of income tax in Uganda.

1.5 Scope of the study

The study scope covered the following aspects

1.5.1 Study scope

The study scope covered the following: the level of tax education about Income Tax conducted, determinants of Income Tax performance, and the recommended policies for improving the performance of Income Tax in Uganda.

1.5.2 Geographical scope

The study was conducted in Nakawa Kampala Uganda.

1.8.3 Time scope

The period of investigation was from July 2006-May 2007 because at that time the income tax revenue was very low at only 27% of net revenue collections were from income taxes.

1.9 Significance of the study

The study will help the future academicians with information regarding the level of tax education about Income Tax conducted by URA Nakawa.

The study will also help future researcher have information regarding the determinants of Income Tax performance in Uganda

The study will help the management of URA have information regarding the recommended policies for improving the performance of Income Tax in Uganda.