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The Tax Base Can Only Grow If The Economy Is Formalized - Economist

Ronald Watsomu Wanda, an Economist and Managing Director at CYESA says the only way the government can increase its tax base is by creating more formal jobs.

His opinion follows a Twaweza report indicating that 55 percent of Ugandan businesses opened in the last 5 years closed due to the Covid 19 pandemic, heavy taxation, and low demand for the products and services.

The report which was compiled in conjunction with the Uganda Revenue Authority (URA), and the Tax Justice Alliance Uganda, further showed that businesses that survived these hardships are also on the verge of collapse or stagnant.

During an interview with Olive Najjuma on The Fatboy Show, Economist Wanda Watsomu said as URA tries to improve its efficiency, the tax base should also be boosted to create more sources of revenue.

"URA is instead focusing on the few businesses that can pay taxes and squeezing them much as they can with more and more taxes which creates more problems," he said.

Watsomu continued, "ultimately our tax bases can only grow if we formalize the economy. With increasing informal businesses, the tax bases become limited. If the economy is formalized, more people will be employed and they get to pay as they earn." 

The economist noted that Uganda has been acclaimed as a very entrepreneurial country. However he added that most ugandans are engaging in entrepreneurship not because they have a heart for it but to survive as a result of lack of formal employment.

"The report talks about hawkers, small kiosks, bodabodas, and Rolex stalls among others. I don't think these should be considered as businesses but rather people trying to survive as a lack of formal employment," he said.

Mr. Wanda suggested that for Small Scale and Medium Enterprises to survive, the government should reduce its tax rates to enable these businesses to thrive. There is also a need for a localized financing sector to support such businesses.

He recognized that because businesses are undergoing such local hardships due to Covid and the high inflation that has followed, it becomes impossible for many SMEs to survive.

The Fatboy show is hosted by James Onen aka Fatboy, Olive, and Sarah every weekday from 6 am to 10 am on RX Radio.

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