NAME: TUMWINE BARNABAS

STUDENT ID: 001-311

MODULE: REVENUE AND TAXATION CAT 1

LECTURER: MS MARY NYACHIEO

TUMWINE BARNABAS

TAX CONSULTANT WORKING WITH KS ASSOCIATES

RE; BRIEF ON IMPENDING TAX REFORMS TO MEET INTERNATIONAL STANDARDS

This brief to be presented before the Members of Parliament discussing on the key
considerations when establishing an ideal tax legal regime for the citizens.

Tax is defined in Matthews v. Chicory Marketing Board 1935 60 CLR, 263 1, to mean a
compulsory exaction of money by a public authority for public purpose or raising money for the
purpose of government by means of contributions from individual persons.

1
Matthews v. Chicory Marketing Board 1935 60 CLR, 263
The duty to pay tax is provided for under Article 17 (1) (g) of the Constitution, 2 which states
that “It is the duty of every citizen of Uganda to pay taxes”.

In line with Article 152(1) of the Constitution of the Republic of Uganda 1995, no tax shall be
imposed except under the authority of an Act of Parliament. Thus, tax is a creature of statute.
This means that if there is no statute of parliament on a tax, then that tax is not there and if there
is a clear express of a tax in a statute, then the court cannot remove it.

The rationale behind the imposition of tax is primarily to enable the government to carry out its
functions effectively and also to use part of such revenues to provide some social amenities for
public use and other services such as electricity, clean water, roads, and health services etc. The
various reasons for levying tax include the following; it helps raise revenue for the government,
helps provide services for citizens, promotion and protection of business industries, stimulates
investment, reduction of income inequalities and regulation of production and consumption of
products such as alcohol and cigarette.

Though taxation laws defer from country to country, there are certain yardsticks which should be
followed if you are to have a good tax system. These are known as the canons or principles of
taxation.

These principles of taxation are concepts that provide for guidelines towards a good tax system.
Since many views’ taxation as a necessary evil, it should be administered in a way that creates
minimum pain to the payer, just like the proverbial honey bee which collects nectar from the
flower without hurting the flower.

Some of the principals were developed by Adams Smith in the 18th Century in his famous 1776
Treaties titled “The Wealth of Nations”. And these are as discussed below;

The canon of Certainty

According to this principle, the taxes each individual is bound to pay should be certain and not
uncertain. The tax payer should know how much, what tax, when, why and where the tax should
be paid. this will enhance proper tax planning and fair assessment reducing corruption tendencies
within the tax system.

2
Constitution of the Republic of Uganda 1995,
For example, the canon of certainty is envisaged under Section 4(5)3 of the Income Tax Act,
Cap 340, where the taxpayer to whom presumptive tax is applicable are clearly stated and those
to whom it does not apply are also provided under Section 4(8).

Another illustration of the canon of certainty is posited under Section 5(1)4 which states that the
tax shall be charged for each year of income, on every person who has rental income for the year
of income. These legislative provisions guide the tax payers and collectors to well understood
the taxes, the time and reason of payment as well as the amount to be paid by an individual. This
will prevent arbitrary tax regime and promote certainty in the country`s tax regime.

The canon of Equality or Ability,

This canon dictates that Tax should be levied fairly so that: in regard to horizontal equity, the
same amount is paid by persons or entities that are equal in earnings or wealth. However, in
regard to vertical equity, the contribution in tax should increase as the taxable income increases.

This can be depicted in Part I of schedule 45 of the Income Tax Cap 338 which provides for
rates of income tax for individuals.

The canon of Convenience

The Cannon of convenience suggests that every tax ought to be levied at the time, or in the
manner in which it is most likely to be convenient for the taxpayer. a taxpayer should not
undergo undue difficulty to pay tax. Therefore, the place, medium, mode, manner and time of
payment should not be an extra burden to the taxpayer.

For example: under Section 37(1)6 a tax payer can apply for a substituted year of income. Also,
Section 37(2) a tax payer can apply to change the substituted year back to the normal year of
income or to another substituted year of income.

Also, Section 121(1) 7provides for payment of provisional tax. Section 121(2&4) provides for
payment of provisional tax in installments. Also, under the withholding Tax regime provided

3
Section 4(5) of the Income Tax Act, Cap 340
4
Section 5(1) the income tax Act Cap 340
5
the Income Tax Act Cap 338
6
Section 37(1)
7
Section126 of the Income Tax Act
under Section126 of the Income Tax Act, the annual tax liability is divided into 12 months and
the employee is being taxed monthly before the money reaches his or her hand to save him or her
the burden to pay tax. (Pay As You Earn)

The canon of Economy

This canon suggests that the cost of collection of Tax should be minimal as compared to what it
brings in the treasury. And it shouldn’t also take so much from the pockets of the tax payer. For
example; Pay as You Earn is administered under the withholding tax regime which is very less
costly in terms of collection of the tax since the tax is collected by the employers/ withholding
agents and must pay that tax to the Commissioner General within 15days after the end of the
month in which the payment was made as provided under Section 140(1)8 of the Income Tax.

Also, apart from Adams Smith’s four canons of taxation in the 18th Century in his famous
1776 Treaties titled “The Wealth of Nations, modern economists over time have laid down
the principles that policy makers should take into account when making tax laws; these
principles are referred to as the canons of taxation. The following are the common canons
of taxation:

Canon of Diversity:

The cannon suggests that a good tax system ought to be diverse in nature rather than having a
single or two taxes. The government should collect revenue from its citizens by levying direct
and indirect taxes. Variety in taxation is desirable from the point of view of equity, yield and
stability. It’s not advisable to put all your eggs in one basket9.

For example: During the Covid-19 period, the employment income was severally affected
because people were not working and the government would have collapsed but they had other
taxes like consumption tax to sustain government.

Canon of Simplicity:

This canon implies that the tax system should be fairly simple, plain and intelligible to the tax
payer. This Canon suggests that a good tax system should be fairly simple, coherent, plain,
8
Section 140(1) of the Income Tax Act Cap340
9
A Guide to Taxation in Uganda | Seventh Edition FY-2024-25
intelligible and straight forward to the tax payer. In other words, tax laws should be made in a
fairly simple way that the taxpayer is able to understand. If it is complicated and difficult to
understand, then it will lead to oppression and corruption. According to Ian Lamber, simplicity
means ‘simple to you and me, not just to the tax profession. For example: URA has always
conducts workshops to explain the different taxes. They have also tried to localize tax in
different languages like Luganda, Swahili.

Canon of Elasticity:

The tax system should be fairly elastic so that if at any time the government is in need of more
funds, it should increase its financial resources without incurring any additional cost of
collection. Income tax, railway fares, postal rates, YAKA etc., are very good examples of elastic
tax. The government by raising these rates a little, can easily meet its rising demand for revenue.
They should be easier to amend. They can amend either when government needs more money or
less money.

Canon of Productivity:

The canon of productivity indicates that a tax when levied should produce sufficient revenue to
the government. If a few taxes imposed yield a sufficient fund for the state, then they should be
preferred over a large number of small taxes which produce less revenue and are expensive in
collection. For example; Income Tax, Vat Act, import management act.

Inconclusion, the Parliament of Uganda should put in consideration the above principals to sure
that they establish an ideal taxation regime for the citizens.

BIBLIOGRAPHY

STATUTE

Constitution of the Republic of Uganda 1995

The Income Tax Act Cap340

CASE LAW

Matthews v. Chicory Marketing Board 1935 60 CLR, 263

A Guide to Taxation in Uganda | Seventh Edition FY-2024-25