TO PAY OR NOT TO PAY?

Transcription

1 TO PAY OR NOT TO PAY? Citizens Perceptions on Taxation in Uganda A case of Jinja and Kampala May 2013

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3 Table of Contents List of Figures 2 List of Tables 3 Abbreviations and Acronyms 4 Acknowledgements 5 EXECUTIVE SUMMARY 6 Central Government 7 Uganda Revenue Authority (URA) 7 Local Governments 8 Civil Society Organizations 8 1. INTRODUCTION Uganda s Tax System Rationale of the study Objectives of the study Limitations of the study Structure of the Report THE SURVEY METHODOLOGY Scope and Coverage Survey Instruments The Sample Sample Characteristics Data Collection KEY FINDINGS Tax Awareness, Compliance and Fairness Tax Management and Service Provision Satisfaction CONCLUSIONS AND RECOMMENDATIONS Conclusion Recommendations 42 To Pay or Not to Pay? Citizens Perceptions on Taxation in Uganda 1

4 REFERENCES 44 ANNEXES 46 A.1: Respondents awareness of Taxes, Fees or Charges (%) 46 A.2: Respondents who paid any of the Taxes, Fees and Charges (%) 47 A.3: Respondents awareness of how Taxes, Fees and Charges are calculated or assessed (%) 48 A.4: Respondents who believe the Taxes, Fees or Charges are fairly calculated or assessed (%) 49 A.5: Respondents Opinions for Major Problems in Tax Collection (%) 50 A.6: Respondents opinion on who is responsible for poor tax collection in Uganda (%) 51 A.7: Respondents Opinion on Tax Collection and Service Provision (%) 52 A.8: Respondents opinion on actions to reduce the misuse of tax revenues (%) 53 A.9: Respondents opinion on measures to improve the use of tax revenue (%) 54 A.10. Survey Questionnaire 55 List of Figures Figure 2.1: Gender of Respondents 17 Figure 2.2: Age group of Respondents 17 Figure 2.3: Highest level of education of Respondents 18 Figure 2.4: Monthly Expenditure of Respondents 18 Figure 3.1: Respondents who Pay Taxes, fees and charges payment by Gender 20 Figure 3.2: Respondents who pay Taxes, fees and charges by Age 21 Figure 3.3: Respondents who pay Taxes, fees and charges by Education 22 Figure 3.4: Respondents who pay Taxes, fees and charges by employment 22 Figure 3.5: Respondents who have TINs 25 Figure 3.6: Reasons for not having TIN 26 Figure 3.7: Respondents who would dodge or hesitate to pay tax if given chance 28 Figure 3.8: Access to Information on Taxes, Budget and Spending 31 Figure 3.9: Respondents Overall Satisfaction with quality of public services 35 Figure 3.10: Respondents rating of services provided by government (%) 36 Figure 3.11: Respondents rating of services provided by government- Kampala (%) 38 Figure 3.12: Respondents rating of services provided by government Jinja (%) 39 Figure 3.13: Respondents rating of services provided by government Males (%) 40 Figure 3.14: Respondents rating of services provided by government Females (%) 40 2 To Pay or Not to Pay? Citizens Perceptions on Taxation in Uganda

5 List of Tables Table 2.1 Sample Distribution by Council 16 Table 2.2: Main Occupation and Principal Source of Income as a % of the Respondents 19 Table 3.1: Monthly spending by age-group 21 Table 3.2: Awareness of Taxes, Fees and Charges as a % of the Respondents 23 Table 3.3: Payment of any of the Taxes, Fees and Charges as a % of the Respondents 24 Table 3.4: Awareness of how Taxes are calculated or assessed as a % of the Respondents 24 Table 3.5: Belief that Taxes are fairly calculated or assessed as a % of the Respondents 25 Table 3.6: Major Reasons Why People Pay Taxes (as a % of the Respondents) 27 Table 3.7: Major Reasons Why People Pay Taxes by education levels (as a % of the Respondents) 27 Table 3.8: Reasons why respondents would dodge or hesitate to pay Taxes 28 Table 3.9: Respondents Opinions for Major Problems in Tax Collection (%) 29 Table 3.10: Respondents opinion on who is responsible for poor tax collection in Uganda(%) 30 Table 3.11: Respondents Opinion on actions to reduce the misuse of tax revenues (%) 32 Table 3.12: Respondents Opinion on Tax Collection and Service Provision (%) 33 Table 3.13: Respondents opinion on measures to improve the use of tax revenue (%) 34 To Pay or Not to Pay? Citizens Perceptions on Taxation in Uganda 3

6 Abbreviations and Acronyms ADB ADBI CFPED CRAFT Cap CRC CSOs CSPro GDP KCCA LC LG LHT LST MoFPED PAC PAYE RIT SEATINI TIN TJN URA VAT WHT African Development Bank Asian Development Bank Institute Committee on Finance, Planning and Economic Development Capacity for Research and Advocacy for fair Taxation Chapter Citizen Report Card Civil Society Organisations Census and Survey Processing System Gross Domestic Product Kampala City Council Authority Local Council Local Government Local Hotel Tax Lost Service Tax Ministry of Finance, Planning and Economic Development Public Affairs Centre Pay As You Earn Rental Income Tax Southern & Eastern Africa Trade Information & Negotiations Institute Taxpayer Identification Number Tax Justice Network Uganda Revenue Authority Value Added Tax Withholding Tax 4 To Pay or Not to Pay? Citizens Perceptions on Taxation in Uganda

7 Acknowledgements This publication was produced jointly by SEATINI-Uganda, Tax Justice Network-Africa and Oxfam. We extend our appreciation to the following for their contributions towards the production of this report: Mr Daniel Lukwago, Ms Nelly Busingye Mugisha, Ms Regina Navuga, Staff of Tax Justice Network Africa (TJNA) and the officials at Democratic Governance and Accountability Programme (DGAP) Uganda. This document has been produced with the financial assistance from European Union through Democratic Governance and Accountability Programme (DGAP). The contents of this document are the sole responsibility of SEATINI- Uganda, Tax Justice Network Africa (TJNA) and Oxfam and can under no circumstances be regarded as reflecting the position of the European Union. To Pay or Not to Pay? Citizens Perceptions on Taxation in Uganda 5

8 EXECUTIVE SUMMARY This study was conducted in Jinja and Kampala to measure citizens awareness on taxation and satisfaction with provision of public services. A total of 445 people (169 in Jinja and 276 in Kampala) were interviewed for the survey. Taxation is a subject that is broadly regarded as a domain of experts and is poorly understood in Uganda. The taxation debate in Uganda has always remained a preserve of a few government technocrats and Uganda Revenue Authority (URA). Very few Ugandans and civil society organisations are involved in the taxation policy debate, and even when consultations are done, they remain at information level with mainly key private sector organisations. Majority of Ugandans consider tax revenue as governments money. Most do not yet see it as their own money for provision of public goods. Currently, vast resources are lost through taxes that are not collected, are avoided, evaded or simply never find their way into the treasury. As a consequence of the appalling tax revenue gap, a system of checks and balances has been lacking and the legitimacy of the state is at stake. Citizens have the right to information on how public funds are collected and how they are spent. Effective accountability requires monitoring of not only the public expenditure but also on how a government generates its income. Some of the key findings include: i. Most respondents are mainly aware of the direct and operational taxes, fees and charges such as market dues, trading licences and less aware of most indirect taxes and corporate taxes. Even those who are aware of various types of taxes don t know how they are calculated or assessed and majority feel they are not fairly assessed. Lack of tax awareness affects compliance and might be negatively impacting the amount of tax revenues generated. ii. Only 29% of the respondents reported to have Taxpayer Identification Numbers (TIN); 10% in Jinja and 41% in Kampala. Those who don t have TIN reported that they don t need it since they don t pay URA taxes. Lack of TIN makes its hard for URA and other tax agencies to effectively identify individuals, businesses or tax preparers for tax purposes, which is contributing to low tax revenues in Uganda. iii. To build trust between citizens and government, information to the public is crucial. Citizens access to and right to information on taxes collected and how revenues are spent is often seen as a necessary condition to achieve accountable, transparent and participatory governance and people-centred development. However, information to the citizens on tax revenues collected, budget allocations and how to report misuse of tax revenues is in scarce supply. The survey found that very few of the respondents had accessed information on tax revenues and government budgets. 6 To Pay or Not to Pay? Citizens Perceptions on Taxation in Uganda

9 iv. Most respondents believe that citizens pay taxes in anticipation of public services. However, most them believe that tax revenues are not used effectively to deliver public services. This perception has negative impact on their willingness to pay taxes and contributes to eroding peoples trust in the government s capacity to provide the expected services. Some respondents said that they would be willing to pay more taxes if public services were improved. Hence, from a policy perspective there is need to linkage tax revenue to delivery services. Citizens want to see better public quality services being delivery by public agencies. v. An overwhelming majority of the respondents are dissatisfied with the overall provision of public services. They mainly dissatisfied with provision of health care, road, markets, and education. The very low level of satisfaction of services provided by government is a critical issue of concern, since it has a negative impact on the citizen s willingness to pay taxes. vi. Majority of the respondents believe that the major reasons for poor tax revenues are that tax /fee rates are too high; taxes are too many and that public officials are dishonest and corrupt when it comes to tax collection and utilisation. From a citizen s perspective they propose measures for improving the use of tax revenues such as: provision of more information on tax assessment and allocation of tax revenues; punishment of politicians and government officials who misuse public funds. In line with the above findings, following recommendations are suggested to various stakeholders to improve taxation in Uganda: Central Government i. There is need for government to find ways in which tax collection can be linked to quality of service delivery. ii. Needs to provide more information on taxes, fees and charges to increase citizen understanding and compliance to tax payment. iii. Needs to expedite the national identity card, which should be linked to the personal TIN in order to increase tax base. iv. Need to seriously fight corruption to order to increase citizen trust and confidence in government v. Government should introduce more progressive direct taxation regime as opposed to the indirect taxation regime that is regressive and affects the poor people most. Uganda Revenue Authority (URA) i. Needs to do more sensitization on how the various taxes, fees and charges are calculated and assessed. ii. Needs to encourage all citizens of Uganda to acquire the TIN by simplifying the process of acquiring one. iii. Establish more accessible and efficient tax payment facilities, and strengthening the capacity to follow up cases of non-payment through fair and reasonable enforcement. iv. Provide mechanisms for addressing citizen complaints on taxation issues. To Pay or Not to Pay? Citizens Perceptions on Taxation in Uganda 7

10 Local Governments i. Make public through the media and website all taxes they collect and how they are utilized. ii. Make public information on their budgets and spending. Civil Society Organizations i. Should develop their capacity to understand and influence taxation policy debate ii. Educate citizens to understand why they should pay taxes and what they can expect from their tax compliance or willingness to pay taxes. iii. Educate citizens to understand that as taxpayers they can make their voices heard and actively take part in public policy decision-making processes about how taxes are collected and spent on public services and thus hold governments accountable iv. Enable citizens to participate in and influence the different stages of the budget process. v. Regularly provide an opportunity to the tax justice campaign to track any changes that emerge as well as sustaining citizens engagement through perception surveys. vi. Undertake perception surveys regularly to provide an opportunity for the tax justice campaign to track any changes that emerge as well as sustaining citizens engagement. 8 To Pay or Not to Pay? Citizens Perceptions on Taxation in Uganda

11 1. INTRODUCTION This survey was conducted in Kampala and Jinja to measure citizens awareness on taxation and satisfaction with provision of public services using a Citizens Report Card (CRC) methodology. A CRC is one of the social accountability tools, which citizens can use to demand improvement in the quality of provision of public services. The CRC is a simple and credible tool to provide systematic feedback to public agencies about their performance. The CRC provides a summative satisfaction score that captures the totality of critical servicerelated parameters (ADB & ADBI, 2007). 1 Taxation policy has always been an important instrument for augmenting revenue. In developing countries like Uganda tax revenue is the major source of domestic revenue. Thus the most important motivation for fiscal policy in Uganda is the need to raise more revenue. Despite the fact that Uganda has taken credible tax reforms in the last decade, tax collections are still very low. The ratio of tax revenue to Gross Domestic Product in Uganda is one of the lowest in the East African region 2, standing at less than 14%. Ndulu et al ( ) attribute a slow growth in tax revenue in Uganda as a percentage of GDP to emanate chiefly from fiscal corruption. This exacerbated by high levels of tax incentives and overdependence on a small number of sources of tax revenue. Taxation affects all citizens directly or indirectly, however, citizens have very little say on how taxes are levied and to a large extent how their tax money is utilised. In Uganda, government accountability on how they spend the citizen s taxes is very minimal. The abolition of direct taxes such as graduated tax- has reduced ownership and ability to demand for accountability for the money and therefore they might not realize that they contribute to the tax revenue base. The taxation debate in Uganda has always remained a preserve of a few government technocrats and Uganda Revenue Authority (URA). Very few Ugandans and civil society organisations are involved in the taxation policy debate, and even when consultations are done, they remain at information level with mainly key private sector organisations. Thus, issues of tax justice are never brought to the discussion table. 1.1 Uganda s Tax System Legal and Institutional Framework The laws that govern the administration of Uganda s tax system include: The Constitution of the Republic of Uganda, 1995, as amended in 2005; The Local Government Act, Cap 243, Public Finance Act Cap 149; The Contingencies Fund Act Cap 150; The Budget Act, 2001; 1 Asian Development Bank Institute (2007). Improving Local Governance and Pro-Poor Service Delivery: Citizen Report Card Learning Toolkit. 2 Kenya is 20%, Tanzania is15%, Burundi is 14%, and Rwanda is12% 3 Ndulu, B.J., Chakraborti, L., Lijane, L., Ramachandran, V., Wolgin, J. (2007) Challenges of African Growth: Opportunities, Constraints, and Strategic Directions IBRD/World Bank: Washington, 1st edtn. To Pay or Not to Pay? Citizens Perceptions on Taxation in Uganda 9

12 The Income Tax Act, Cap 340, as amended (ITA); The Value Added Tax Act, Cap 349, as amended (VATA); The East African Excise Management Act 1970, Cap 28, as amended; The stamps Act, Cap 342; The Traffic And Road Safety Act, 1998, Cap 361; The Gaming and Pool Betting (Control and Taxation) Act, Cap 292; and The East African Community Customs Management Act, These laws spell out the duties and responsibilities of the institutions responsible for regulating, policy development, planning, assessment, collection, administration, enforcement and accounting for all the revenue. These laws also define the tariffs, for example, they define the imposition and collection of road users tax. Similarly, all provisions for the collection of license fees, fines, levies and other fees, (other than fines imposed by courts) are spelt out (UDN 2008) 4. Uganda s tax system is divided into two tax structures that consist of the Central Government and Local Government. The Central Government tax regime is implemented by Uganda Revenue Authority (URA). The Uganda Revenue Authority (URA) was established by URA Act 1991, Cap 196 as a central body for the assessment and collection of specified tax revenue, to administer and enforce the laws relating to such revenue and to provide for related matters. URA identifies, informs and assesses tax payers with regard to those taxes relevant to them. The mandate URA stops at collecting and accounting for taxes collected and remitted to the government consolidated fund and enforcement of compliance. Under decentralization, Local Governments (Districts, Municipalities, Town Councils and Subcounties) are mandated to collect taxes that are not under the jurisdiction of URA, but few collect it effectively. This is mainly due to very narrow tax base because of limited economic opportunities. In addition, due to political pressures mainly at national level, the largest source of local revenue; graduated tax 5 was abolished. Consequently, many local governments have failed to collect substantial revenue and heavily rely on central government transfers. Other institutions central to taxation in Uganda include: Ministry of Finance, Planning and Economic Development (MoFPED) and the Parliament of the Republic of Uganda. The Ministry of Finance, Planning and Economic Development (MoFPED) is responsible for the formulation of tax policies and non-tax policies aimed at generating domestic revenue and promoting investment, consumption and savings. However, tax policy formulation is limited to a few technocrats without the involvement of all stakeholders such as civil society and all tax payers. The broad tax policy objectives are contained in the annual budget speeches, followed by the details in tax related legislations like the Finance Act, 2003 and Income Tax Act, The Parliament of the Republic of Uganda works through Committees to allow for proper scrutiny, analysis and consultations on tax matters. The Parliamentary Committees responsible for tax related issues are: Budget; National Economy; and Finance, Planning and Economic Development. The Committee on Finance, Planning and Economic Development (CFPED) oversees monitors and evaluates the performance of the MoFPED and URA. The Bills mostly considered by the CFPED are related to revenue collection (like the Finance Bill, Income Tax Bills) and any others related to the institutions and sectors under the Committee s mandate. 4 Uganda Debt Network (2008). Uganda s Taxation Policy: Implications for Poverty Reduction and Economic Growth, Review Report No. 9 5 The abolition of market dues and property tax was proposed by President Museveni during the presidential campaigns in the first quarter of To Pay or Not to Pay? Citizens Perceptions on Taxation in Uganda

13 Tax reforms and implication on tax revenues Box 1.1: Major Tax reforms in Uganda Since the 1990s Uganda has undergone a number of tax reforms geared at mainly: Broadening the tax base; increasing efficiency of collection; creating incentives for the private sector, and ensuring equity of taxation. The reforms were directed at rationalizing the tax structure and tax rates, widening the tax base, reducing exemptions, and simplifying procedures (Box 1.1). Tax reforms were generally in line with International Monetary Fund (IMF) s recommendations of tax systems having the following characteristics (UDN 2008): z Heavy reliance on broad-based sales taxes, such as Value Added Tax (VAT), preferably with a single rate (currently 18%) and minimal exemptions, and excise taxes levied on petroleum products, alcohol, tobacco and a few items that are considered luxurious. z No reliance on export duties, which inhibit international competition, or on small nuisance taxes, the administration of which is not effective. z Import taxation at low levels as possible, with limited dispersion of rates to minimize effective rates of protection. z An administratively simple form of personal income tax, with limited deductions, a moderate top marginal rate, an exemption limit Major changes to the tax system since 1990s: z Establishment of URA (in 1991) in an attempt to better coordinate tax administration and enhance tax revenue collection; z Introduction of the Value Added Tax (VAT) in 1996 despite popular resistance; z Promulgation of a new Income Tax Act in 1997with the objectives of levying tax on a residence basis, ensuring simplicity and promoting a flat tax rate scale; z Abolishment of export taxes and embarked on tariff reform whose policy objectives evolved around simplification of the tax structure; and z Introduction of major policy changes in the decade up to 2007/08, primarily around VAT and income tax. Source: ADB (2011) large enough to exclude persons with modest incomes, and a substantial reliance on withholding tax. z A corporate income tax levied at only one moderate-to-low rate aligned with the top personal income tax rate, with depreciation and other non-cash expenditure provisions uniform across sectors and minimal recourse to sector or activity-specific incentive schemes. Immediately following the creation of URA (a semi-autonomous revenue collection agency), Uganda registered significant improvement in revenue collection, which by 1991 was only 7% of GDP but rose by almost five percentage points to 11.5% in 1998 (Kuteesa et al, ). However, in recent years the proportion of tax revenue to GDP has stagnated at around 13.0% of GDP, largely due to problems in tax administration. While URA s reforms were administratively comprehensive, generally, they were neither focused nor driven by specific performance outcomes such as improved enforcement, a wider tax base etc. The main focus was on meeting revenue targets and not enough was done to embed non-revenue performance objectives and indicators. Excessive tax exemptions have also significantly cancelled out the 6 Kuteesa F., Magona.I., Wanyera.M., Wokadala.J., (2006). Uganda: A Decade of Budget Reform and Poverty Reduction. OECD Journal on Budgeting Vol.6-No.2 To Pay or Not to Pay? Citizens Perceptions on Taxation in Uganda 11

14 prospective impact of the reforms on tax revenue performance (ADB, ). 1.2 Rationale of the study Taxation is a subject that is broadly regarded as a domain of experts and is poorly understood in Uganda due to lack of information among the elected leaders, citizens, civil society organizations, the media, and even the business community or the corporate sector. Additionally, taxation is grossly underutilized and underrated as a tool to establish capable and responsive government that can facilitate the development of representative democracy in any country. Lack of information and understanding constitutes a major impediment to greater tax revenue mobilization by government so as to finance its development agenda. According to Tax Justice Network Africa (TJNA), it has been proven that by building public awareness and having increased knowledge, taxpayers will be motivated to pay their taxes and mobilize public pressure for tax justice. Informed citizens will have an opportunity to hold the government accountable on the quality of public goods and services provided to them and hence increase citizen representation in decision-making processes as well as influencing tax and spending policies in Uganda. Consequently citizens will effectively contribute to building of a democratic political system and promote better governance by advancing an agenda for change. Having vigorous, open debate on tax policies facilitates the development of a country s fiscal social contract, whereby citizens are encouraged to pay taxes because they are confident that the tax system is fair and is raising revenue for valued programs and services (Moore and Schneider, ). In most developing countries including Uganda, the citizens who are the taxpayers are usually not involved in tax policy discussions because: z Relevant information on taxation is often not available in a timely manner, and there are few official avenues for citizens to influence tax policies. z Tax issues are often seen as being technical and often complicated, and with this excuse it is easier for the government to side step public tax debates and conceal the true implications of the proposed tax policies. z There is a lack of formal processes or forums through which the government and its citizens can freely engage on tax policy. Majority of Ugandans consider tax revenue as governments money. Most do not yet see it as their own money for provision of public goods. Currently, unfair tax collection methods disproportionately tax the poor and vulnerable. Also, vast resources are lost through taxes that are not collected, are avoided, evaded or simply never find their way into the treasury. As a consequence of the appalling tax revenue gap, a system of checks and balances has been lacking and the legitimacy of the state is at stake. Citizens have the right to information on how public funds are collected and how they are spent. Effective accountability requires monitoring of not only the public expenditure but also on how a government generates its income. In 2012, SEATINI conducted a citizen s satisfaction survey to research citizen s perceptions (knowledge level of satisfaction); initiate a practice of collecting public views to reflect the 7 African Development Bank (2010). Domestic Resource Mobilization for Poverty Reduction in East Africa: Uganda Case Study 8 Moore, M. and A. Schneider (2004). Taxation, Governance and Poverty: Where do the Middle Income Countries Fit? IDS Working Paper, no To Pay or Not to Pay? Citizens Perceptions on Taxation in Uganda

15 reality in society and act as a basis for future actions for instance campaigns and advocacy. It highlighted, among others: the level of awareness on several taxes was very low and, 68% of citizens interviewed would hesitate to pay taxes because they are not sure that his/her money would be put to proper use. Based on this study, it was imperative to carry out another citizen s satisfaction survey. The findings of this study will: z Help government agencies facilitate open and proactive discussions on their performance in regards to taxation and service delivery; z Empower citizen groups to play a watch-dog role to monitor public service delivery; z Enable the central government, especially URA and local governments to improve tax revenue generation; z Increase citizen awareness on taxation, and understanding their duties and roles as taxpayers. 1.3 Objectives of the study The overall objective of the study was to measure citizens awareness and perceptions on taxation and delivery of public services in Uganda. Specifically the study was expected to: z Assess the level of citizen awareness and perception about tax systems. z Examine the major concerns of citizens in regards to the current tax system z Ascertain the degree of tax compliance; z Assess the level of overall citizen satisfaction with the usage of public funds and particularly in relation to public services and, z Assess the extent to which citizen awareness on tax policy affect transparency and accountability in the delivery of public services. 1.4 Limitations of the study z The building blocks of any user feedback study are ordinal in nature and are based on experiential responses, thus, there is likelihood of subjectivity in the responses. z This survey was more urban based with respondents with a relative high level of education and thus, its analysis is more inclined to urban perspective. z The study concentrated on capturing the views of the tax payers but did not capture the views of the tax authorities and government officials. z Lengthy bureaucratic procedures in local government offices in allowing the survey to be carried out in their areas delayed the speech of researchers. z Most business people didn t have time for interviews, they refused to participate in the research z None response from women especially in Kampala who deliberately refused to engage in the interview claiming that they don t pay taxes, busy for such interviews, and not interested in interviews.. z The sensitivity of the topic led to some people refusing to participate in the survey fearing the researchers were spies from URA or KCCA or Jinja Municipal council. z Limited awareness of taxation especially from non-business community delayed the speed of researchers, since they had to first explain each of the taxes. To Pay or Not to Pay? Citizens Perceptions on Taxation in Uganda 13

16 z Language barriers especially from non-ugandans such as Chinese and some Indians where translations had to be done that could have resulted in misrepresentation of information. 1.5 Structure of the Report The report is divided into four sections. Section one deals with the background, section two, explains the methodology of the study including information on the respondent characteristics, section three, is a presentation of the key findings and the final section presents the conclusion and key policy recommendations. 14 To Pay or Not to Pay? Citizens Perceptions on Taxation in Uganda

17 2. THE SURVEY METHODOLOGY 2.1 Scope and Coverage The study involved a sample survey of individuals in Kampala and Jinja. The survey included respondents from five divisions of Kampala: Central, Rubaga, Makindye, Kawempe and Nakawa and three divisions in Jinja: Central, Mpumude and Walukuba. The selection was purposive. The survey targeted Kampala and Jinja, which were part of the tax justice campaign that was conducted under the Capacity for Research and Advocacy for Fair Taxation (CRAFT) project. Additionally, Jinja district was also chosen because it was the location of the CRAFT training and it is where the training modules were pre-tested in November Survey Instruments A quantitative survey questionnaire was developed for use in collecting information on citizen perceptions. The draft questionnaire was pre-tested with a few respondents in Kampala, before it was finalized. The final questionnaire is contained in Annex The Sample The sample size was determined taking into consideration: the degree of reliability of the estimates, cost, and efficiency of the sampling design. To determine the optimum sample size, the study employed the formula below. n= Z 2 pq e 2 Where, Z = critical value at 95% confidence interval which corresponds to 1.96 P = proportion of the variable of interest. For this study, distribution of businesses per region based on the 2010/11 Census of Business Establishment report 9. This indicator was used based on the fact that taxation in Uganda is highly associated with ownership or engagement in business. According to the report, Kampala had 29.2% and Eastern Uganda (were Jinja falls) had 14.6% of total business establishment in Uganda. q = 1 p e = margin of error, which is the maximum difference between the observed sample mean and the true value of the population. The margin of error used is 5%. n = sample size 9 Uganda Bureau of Statistic (2010). Census of Business Establishments, 2010/11 report To Pay or Not to Pay? Citizens Perceptions on Taxation in Uganda 15

18 Given the differences between the two councils, particularly in terms of business establishments, they were examined separately. Thus, the derived sample for the study is 318 and 192 respondents for Kampala and Jinja respectively. The sample was down-sized by 10% to 286 and 172 respondents for Kampala and Jinja respectively due to time and budget constraints. The respondents that were interviewed were selected randomly from each of the selected divisions. Due to the absence of a complete listing of respondents, enumerators started at the division headquarters, moved anti-clockwise (this was completely arbitrary, but every enumerator followed the same method), skipping five households or businesses establishments10 after each interview until interviews had been done at the required number of households. In each identified respondent household or businesses establishments, the enumerators interviewed any adult (over 18 years). Since the questions asked were about personal perceptions the selected respondents were encouraged to give their true opinion. 2.4 Sample Characteristics A total of 445 respondents were interviewed. Kampala had 276 and Jinja had 169 respondents. The actual distribution of respondents per council and division is shown in Table 2.1 below. Table 2.1 Sample Distribution by Council Council Division Number of Respondents Percentage of total respondents Kampala Central % Rubaga 54 20% Makindye 42 15% Kawempe 37 13% Nakawa 38 14% Sub-Total % Jinja Central 74 44% Mpumude 53 31% Walukuba 42 25% Sub-Total % Total Source: Survey data Further details on the sample include: a. 53% of the respondents were males and 47% females. Jinja had 47% males and 53% females, whereas as Kampala had 56% males and 44 females (Figure 2.1); 10 So using a skip interval brings more variety into the cluster, while still keeping it reasonably compact. 16 To Pay or Not to Pay? Citizens Perceptions on Taxation in Uganda

19 Figure 2.1: Gender of Respondents Percentage Jinja Kampala Combined Male Female Source: Survey data b. 43% of the respondents were between years of age, 46% between years, and 12% 50 years and above. In Jinja majority of the respondents (51%) were between the ages of years. Whereas in Kampala, majority (48%) were between the ages of years (figure 2.2). Figure 2.2: Age group of Respondents Percentage Males Females Total Male Female Total Male Female Total Jinja Kampala Combined and above Source: Survey data To Pay or Not to Pay? Citizens Perceptions on Taxation in Uganda 17

20 a. 42% of the respondents had college or university education, 33% secondary education, 12% vocational education/ adult education, 10% primary education, while about 3% no formal education. In Jinja majority of the respondents (44%) had primary education, whereas in Kampala majority (41%) had college or university education (figure 2.3). Figure 2.3: Highest level of education of Respondents Percentage Male Female Total Male Female Total Male Female Total Jinja Kampala Combined Primary Secondary College, University Vocational, Adult Education No Formal Schooling Source: Survey data a. Majority (71%) of the respondents spend less than Shs 735,000 per month. Jinja had 78% and Kampala 67% of the respondents who spend less than Shs 735,000 per month. By gender, 68% of the males and 75% of females spend less than Shs 735,000 per month. If we use spending as a proxy for measuring one s income, this shows that about two-thirds of the respondents earn less than Shs 735,000 ($280) per month (figure 2.4). Figure 2.4: Monthly Expenditure of Respondents 100 Percentage Male Female Total Male Female Total Male Female Total Jinja Kampala Combined Less than 235, , , ,000-1,235,000 1,235,000-1,735,000 1,735,000-2,235,000 more than 2,235,000 Source: Survey data 18 To Pay or Not to Pay? Citizens Perceptions on Taxation in Uganda

21 b. Employment status: The main occupations of the respondents and the principal sources of income of their households are presented in Table 2.2. Almost 55% (253) of the respondents were self-employed in trade, commerce and others. Trade and commerce was also the principal source of income of the respondents. Thereafter follows wage employment in the private sector, which 15% (67) of the respondents reported as their main occupation and the principal source of income. Only 7% respondents were public sector employees. 12% of the respondents were unemployed and the major source of income from transfers from relatives. Table 2.2: Main Occupation and Principal Source of Income as a % of the Respondents Principal Source of Income Main Occupation Self Employment Agric. Trade & comm. Other Wage Private Sector Public Sector Other (NGO etc) Transfer from relatives Total Agriculture Self Trade & Employed commerce Other Private Sector Wage Public Employee Sector Other (NGO etc) Unemployed Total Source: Survey Data 2.5 Data Collection Survey data was collected in May Given the sensitivity of the questions, the Enumerators had to establish trust and rapport with the respondents. However, since the questions were straightforward and easy to understand, the respondents were more than willing to cooperate and answer most of the questions Data Entry and Analysis Completed questionnaires were cleaned and then entered into a customized data programme; CSPro, and later analyzed using STATA software. The statistical analysis consisted of a step-by-step process, starting with frequencies, cross-tabulations combining bi and multivariables, and, finally, an exploratory analysis of the respondents perceptions on taxation and provision of public services. To Pay or Not to Pay? Citizens Perceptions on Taxation in Uganda 19

22 3. KEY FINDINGS This section first provides a descriptive presentation of the characteristics of those who pay taxes, fees and charges, presents citizen s perceptions on taxes, fees and charges, and satisfaction with the provision of public services. 3.1 Tax Awareness, Compliance and Fairness Payment of Taxes, Fees and Charges In the total sample, almost 66% reported paying Taxes, Fees or Charges. A higher proportion of respondents in Jinja (69%) reported to pay taxes, fees or charges compared to Kampala (64%). The survey data shows major differences between male and female respondents with respect to tax payment, with a higher percentage of men (75%) reporting paying taxes, fees or charges compared to women (56%) (Figure3.1). It should be acknowledged, however, that reported tax payments may differ from actual payments. Figure 3.1: Respondents who Pay Taxes, fees and charges payment by Gender Percentage Males Females Total Males Females Total Males Females Total Jinja Kampala Combined Source: Survey Data With respect to age, a larger share of the middle-aged group (30-49 years of age) reported to have paid any taxes, fees and levies (Figure 3.2), which is not surprising since a larger share of this age group is expected to have a taxable income (85% of the respondents in this age group spend more than Shs 235,000/=) compared to the two other age groups. 20 To Pay or Not to Pay? Citizens Perceptions on Taxation in Uganda

23 Table 3.1: Monthly spending by age-group Spending category and above Total Less than 235, , , ,000-1,235, ,235,000-1,735, ,735,000-2,235, More than 2,235, Source: Survey Data Figure 3.2: Respondents who pay Taxes, fees and charges by Age Percentage = < 50 Total = < 50 Total = < 50 Total Jinja Kampala Combined Source: Survey Data As expected people with higher education are likely to be employed than other groups and more integrated into the formal and taxable economy, this is reflected in a significantly higher proportion (78%) of respondents who have college or university reporting to be paying taxes, fees and charges (Figure 3.3). To Pay or Not to Pay? Citizens Perceptions on Taxation in Uganda 21

24 Figure 3.3: Respondents who pay Taxes, fees and charges by Education Percentage Yes Yes Yes Jinja Kampala Combined Primary Secondary College, University Vocational, Adult Education No Formal Schooling Total Source: Survey Data Also as expected people in formal wage employment (private and public sector) are more integrated into the formal and taxable economy; this is reflected in a significantly higher proportion of respondents in formal wage employment reporting to be paying taxes, fees and charges (Figure 3.4). Figure 3.4: Respondents who pay Taxes, fees and charges by employment Percentage Jinja Kampala Combined Self Employed-Agriculture Self Employed-Trade & commerce Self Employed-Other Wage Employee- Private Sector Wage Employee- Public Sector Wage Employee-Other (NGO etc) Unemployed Source: Survey Data 22 To Pay or Not to Pay? Citizens Perceptions on Taxation in Uganda

25 3.1.2 Awareness of Taxes, Fees and Charges Citizen s awareness of taxation has an impact on tax compliance and demand for effective service delivery in any given country. The survey measured the level of citizen awareness of 24 common taxes, fees and charges in Uganda. Some of the taxes, fees and charges are collected by local governments (such as KCCA) and others by the Central Government (through URA). The survey data shows that most respondents are mostly aware of operational fees and charges collected by local governments such as trading licenses, and market dues. This is followed by driving permit fees, VAT and PAYE (Table 3.2 and Annex A.1). The high level of awareness of trading and operational licences, VAT and PAYE can be attributed to the fact that these taxes are regularly paid by citizens. Most respondents are aware of direct taxes, fees and charges since they directly affect them. On the other hand, indirect and corporate taxes such as Capital Gains tax, Corporate Tax, Withholding Tax, excise duty are less known since they don t affect people directly. Direct taxation is most likely to have more impact on citizen engagement with their government, since they directly contribute to the tax revenues. Kampala had a higher proportion of citizens who are aware of taxes, fees and charges levied than Jinja. This is not surprising since Kampala has the highest concentration of information sources including those on taxes, and mostly likely to have more informed people. Table 3.2: Awareness of Taxes, Fees and Charges as a % of the Respondents Which of the following Taxes, Fees or Charges Jinja Kampala Combined are you aware of or Yes No Yes No Yes No knowledgeable about? Trading Licenses Market dues Driving permit fees Value Added Tax (VAT) Pay As You Earn (PAYE) Withholding Tax Corporate tax Gaming Tax Royalties Capital Gains Tax Source: Survey Data The type of taxes, fees and charges which most respondents are aware of (such as trading licenses, VAT, driving permit fees) are those that are related to the business or sector there are engaged in. Ultimately, these are the kind of taxes the respondents are likely to pay. The reverse is also true; those they were not aware of (such as capital gains tax, royalties, corporate taxes) are not in line with the kind of business or sector most respondents are engaged in. Thus, most of them don t pay such taxes (Table 3.3 and Annex A.2). Citizen tax awareness has a direct impact on tax compliance and tax revenues. To Pay or Not to Pay? Citizens Perceptions on Taxation in Uganda 23

26 Table 3.3: Payment of any of the Taxes, Fees and Charges as a % of the Respondents Have you ever paid any of these Jinja Kampala Combined Taxes, Fees or Charges? Yes No Yes No Yes No Trading licenses Value Added Tax (VAT) Driving permit fees Pay As You Earn (PAYE) Stamp duty Withholding Tax Corporate tax Gaming Tax Royalties Capital Gains Tax Source: Survey Data Despite the fact that some respondents reported to have paid certain taxes, majority of them are not aware of how most of the taxes are calculated or assessed. For instance, only 9%, 21% and 14% of the respondents know how Trading licenses, VAT and PAYE are calculated respectively (Table 3.4 and Annex A.3). In addition, majority of the respondents think that most of the taxes are unfairly calculated or assessed. Only 33%, 20% and 17% of the respondents think that VAT, PAYE and Business and Company registration fees are fairly calculated or assessed (Table 3.5 and Annex A.4). Table 3.4: Awareness of how Taxes are calculated or assessed as a % of the Respondents Are you aware or knowledgeable of Jinja Kampala Combined how they are calculated or assessed? Yes No Yes No Yes No Value Added Tax (VAT) Pay As You Earn (PAYE) Business and Company registration fees Trading licenses Driving permit fees Traffic Express penalties Work permit fees Capital Gains Tax Gaming Tax Royalties Source: Survey Data 24 To Pay or Not to Pay? Citizens Perceptions on Taxation in Uganda

27 Table 3.5: Belief that Taxes are fairly calculated or assessed as a % of the Respondents Do you think the taxes and fees are Jinja Kampala Combined fairly assessed? Yes No Yes No Yes No Value Added Tax (VAT) Pay As You Earn (PAYE) Business and Company registration fees Driving permit fees Trading licenses Capital Gains Tax Gaming Tax Royalties Work permit fees Corporate tax Source: Survey Data The introduction of the e-tax system by URA is a great improvement especially where it can compel tax payers to carry out self assessment and submit in their returns. However, this is effective for the business companies especially those that are well established and are in position to use the electronic system. For instance, the survey data shows that only 15% of the respondents prepared their tax returns by themselves. This means the ordinary citizens need more sensitization on use of the e-tax system and on how to file their tax returns. Tax Identification Proper identification of tax payers is key in effective tax management, however, only 29% of the respondents reported to have Taxpayer Identification Numbers (TIN). The TIN is an identification number used by URA to identify individuals, businesses or tax preparers for tax purposes. As expected Kampala had the highest proportion (41%) of respondents with TINs compared to Jinja (10%). In both Councils more men reported to have TINs compared to women [Figure 3.5]. Figure 3.5: Respondents who have TINs Percentage Males Females Total Males Females Total Males Females Total Jinja Kampala Combined Source: Survey Data To Pay or Not to Pay? Citizens Perceptions on Taxation in Uganda 25

28 Respondents were asked for the reasons for not having TINs, half (50%) reported that they don t need a TIN, 27% said they have never applied for one, 16% don t know how to get it, and 6% applied for it but never got it. Jinja had the highest proportion (69%) of respondents who said they don t need it compared to Kampala with 31% (Figure 3.6). The above responses point to lack of awareness by most citizens on the importance of the TIN. This is an area which URA needs to work on aggressively. Figure 3.6: Reasons for not having TIN Percentage Male Female Total Male Female Total Male Female Total Jinja Kampala Combined Applied but never got it Never applied for one Don t know how to get it Don t need it Other Source: Survey Data Why people pay taxes? When asked why people pay taxes and fees, more than half (53%) of the respondents said that it was because people anticipated public services, 22% believed they are obliged by government (Table 3.6). However, 17% of the respondents said people paid taxes because they wanted to avoid disturbances. This response indicates that taxation is considered to be harsh and unpleasant by some respondents. However, we observed substantial differences between the two Councils. While 80% of respondents in Jinja anticipate public services, only 35% of respondents in Kampala reported the same. On the other hand, more than one-third (36%) of respondents in Kampala reported that they pay taxes because they are obliged by government laws, however, this seems not be the case in Jinja. The survey data show some differences between gender, a larger share of male respondents (56%) say that people pay because they anticipate public services compared to 47% of female respondents. 26 To Pay or Not to Pay? Citizens Perceptions on Taxation in Uganda

29 Table 3.6: Major Reasons Why People Pay Taxes (as a % of the Respondents) What is the major reason why people pay taxes, fees and charges? Males Jinja Kampala Combined Females Total Males Females Total Males Females Total Obliged by government laws To avoid disturbances Anticipate public services No opportunity to evade Don t know Total Source: Survey Data The higher the level of education, the more likely it is that the respondent either anticipates reciprocal services for his/her tax payment or feels an obligation to the government (Table 3.7). Table 3.7: Major Reasons Why People Pay Taxes by education levels (as a % of the Respondents) What is the major reason why people pay taxes, fees and charges? Primary Secondary College, University Vocational, Adult Education No Formal Schooling Obliged by government laws To avoid disturbances Anticipate public services No opportunity to evade Don t know Total Source: Survey Data As shown in Figure 3.7, less than half (43%) of the respondents reported that they would dodge or hesitate to pay taxes given a chance. Jinja had the highest proportion (54%) of respondents who reported that they would dodge or hesitate to pay taxes compared to Kampala (38%). The major reasons reported by respondents why they would dodge or hesitate to pay tax were reported to be poor quality delivery of public services, misuse of taxes and corruption (Table 3.8). Total To Pay or Not to Pay? Citizens Perceptions on Taxation in Uganda 27

30 Figure 3.7: Respondents who would dodge or hesitate to pay tax if given chance Percentage Males Females Total Males Females Total Males Females Total Jinja Kampala Combined Yes No Refused to Answer Source: Survey Data Table 3.8: Reasons why respondents would dodge or hesitate to pay Taxes Jinja Kampala Combined Reasons Males Females Total Male Females Total Males Females Total Little income or below taxable threshold Not confident that my money would be put to proper use Government officials swindle the tax money Not impressed by the quality of public services being provided To increase my profit margin Total Source: Survey Data 28 To Pay or Not to Pay? Citizens Perceptions on Taxation in Uganda

31 3.1.4 Major problems of taxation in Uganda Respondents were asked about their perceptions on some of the most serious problems hampering tax collection in Uganda. Accordingly most of them agree that tax /fee rates are too high (86%), there are too many taxes/fees to pay (74%), and government officials (politicians (73%) and civil servants (72%)) are dishonest or corrupt (Table 3.9 and Annex A.5). The first two responses are partly attributed to the low tax base; were very few potential tax payers actually pay taxes. This increases the tax burden on the tax payers. The third response reflects a deep distrust among citizens towards their leaders and their ability to deliver the services they always promise. Table 3.9: Respondents Opinions for Major Problems in Tax Collection (%) Description Jinja Kampala Combined Agree Tax revenues are not spent on provision of public services Disagree Agree Tax/fee rates are too high Disagree Agree Tax collectors are dishonest or corrupt Disagree Agree There are too many taxes/fees to pay Disagree Agree Tax collectors harass tax payers Disagree Agree Citizens are not willing to pay taxes Disagree Elected leaders (politicians) are dishonest or corrupt Government workers (civil servants) are dishonest or corrupt Source: Survey Data Agree Disagree Agree Disagree The survey data shows that respondents in Kampala agree that tax collectors harass tax payers. However, this is not highly reported in Jinja. Fjeldstad (200111) argues that coercive tax collection has important consequences for citizens rights and for the democratization process. If taxpayers rights are unclear for both taxpayers and tax authorities, tax compliance 11 Fjeldstad, O-H (2001). Taxation, coercion and donors: Local government tax enforcement in Tanzania. The Journal of Modern African Studies, 39 (2): To Pay or Not to Pay? Citizens Perceptions on Taxation in Uganda 29

32 and accountability will be affected. Moreover, as long as coercion is accepted as an integral part of tax collection it is unlikely that state-society relations can become more accountable and democratic Who is responsible for poor tax revenue collections Table 3.10 presents the percentage of respondents that agree, partly agree (50-50), or disagree as to whether the given groups/institutions are majorly responsible for low tax collection. Local Government Authorities (70%), URA (67%) and Tax/fees collectors, Licences and Permits Officers (66%) were reported as the major causes of low tax collection in Uganda. These views crosscut in both councils, although the share of the respondents who blame Local Government Authorities is higher in Kampala than in Jinja. The high proportion of respondents blaming local governments is partly attributed to the fact that most respondents reported to having paid more of operational taxes and fees such as market dues and operating licenses which are mainly levied by local government authorities (see section above). Details are contained in Annex A.6. Table 3.10: Respondents opinion on who is responsible for poor tax collection in Uganda(%) Description Jinja Kampala Combined Tax/fees collectors, Licences Officers Government workers (civil servants) URA Local Government Authorities Elected leaders (politicians) Tax payers Source: Survey Data Agree Disagree Agree Disagree Agree Disagree Agree Disagree Agree Disagree Agree Disagree To Pay or Not to Pay? Citizens Perceptions on Taxation in Uganda

33 3.2 Tax Management and Service Provision Public Accountability Public accountability is a key indicator in government s responsiveness towards good governance. However, it is important to assess the situation through which citizens could be effective in seeking such public accountability especially given the fact that government is not likely to initiate it on its own. The survey results show that majority (85%) of the respondents think government is obliged to inform or be accountable to them about how it allocates and utilizes taxes that have been collected from citizens. However, survey results show that public accountability is very limited since most respondents felt that government officials are corrupt and very inefficient. To build trust, information to the public is crucial (Rothstein, ). Citizens access to and right to information is often seen as a necessary condition to achieve accountable, transparent and participatory governance and people-centred development (Jenkins & Goetz, ). Information to the public on tax revenues collected, budget allocations and how to report misuse of tax revenues and corruption are, however, in scarce supply, according to the survey data. Very few of the respondents had seen any information on government finances (Figure 3.8). Less than 25% of the respondents say they had seen information on taxes and fees collected by government, 27% say they have seen budget allocations and only 12% had seen any information on the local government budgets. The level of access to information on tax revenues is higher in Jinja compared to Kampala. However, a higher proportion of respondents in Kampala reported to have had access to any KCCA budget compared to those in Jinja. The lack of knowledge on government finances is hindering efforts towards accountable governance in Uganda. Figure 3.8: Access to Information on Taxes, Budget and Spending Percentage Taxes and Fees collected by gov't Financial allocation to sectors (e.g. health) Local Gov't Budget (i.e. KCCA) Jinja Kampala Combined Source: Survey Data 12 Rothstein, B (2000). Trust, Social Dilemmas and Collective Memories. Journal of Theoretical Politics, 12 (4): Jenkins, R. and Goetz, A.M (1999). Accounts and Accountability: Theoretical Implications of the Right to Information Movement in India. Third World Quarterly, 20 (3): To Pay or Not to Pay? Citizens Perceptions on Taxation in Uganda 31

34 3.2.2 Misuse of Tax and fees revenues Majority of the respondents believe that misuse of tax and fee revenue is most likely to take place at Local Government Authorities (93%), URA 14 (91%), service facilities (77%), and LCs (75%). However, only 3% of the respondents (none in Jinja and 4% in Kampala) had reported misuse of tax revenue in the last two years. The major reason for not reporting is that most believe it will have no effect (51%), while 17% fear of repercussions when they report and 11% don t know what to do. A higher percentage of respondents in Kampala (56%) believe it will have no effect, compared to Jinja (42%). However, more respondents in Jinja fear repercussions (21%) compared to those in Kampala (14%). Respondents were asked whether they would get involved and what actions they would use to reduce the misuse of tax revenues. Majority said they would use the media (77%), report to a member of parliament (32%), and would demonstrate (28%), whereas 15% said they would do nothing (Table 3.11 and Annex A.7). Very few said they would report to police (16%). This is a reflection of low level of trust citizens have in government institutions (such as police) in handling such matters. Thus, the media might be the most effective means for engaging citizens in tax justice issues. Table 3.11: Respondents Opinion on actions to reduce the misuse of tax revenues (%) Actions to reduce the misuse of tax revenue Use the media (newspapers, radio, TV etc) Report to LCs Report to Member of Parliament Report to Police Report to Political Party Leaders Report to Local Government Authorities (i.e. KCCA, City council) Demonstrate Jinja Kampala Total Yes No Don t Know Yes No Don t Know Yes No Don t Know Yes No Don t Know Yes No Don t Know Yes No Don t Know Yes No Don t Know However, in reality misuse of taxes by URA is minimal since taxes are collected through the banking system and then transferred the consolidated fund. 32 To Pay or Not to Pay? Citizens Perceptions on Taxation in Uganda

35 Do nothing Source: Survey Data Yes No Don t Know Views on Tax collection and Service Provision The survey data show that the majority of the respondents believe there is minimal relationship between the taxes they pay and service delivery (Table 3.12 and Annex A.8). First, only 4.3% of all the respondents agree with the statement that most of the tax revenues collected are used to provide public services. In Jinja only 4.1% and Kampala only 4.4% of the respondents agree, while over 41.4% in Jinja and 19.9% in Kampala say that taxes are not used at all to provide public services. Second, the majority of all respondents (53%) don t agree that people should refuse to pay taxes until they get better public services. In Jinja, however, this percentage is as high as 54%, compared to 52% in Kampala, which may reflect the willingness of most citizens to continue paying taxes amidst the claim that they are not used to provide public services. But the response may also reflect a situation in which most citizens don t actually pay taxes and cannot link taxes to service provision. Third, nearly half (45%) of the respondents say they are willing to pay more taxes if public services are improved. There are, however, significant differences between Kampala and Jinja in this respect. The respondents in Kampala (only 39.7%) are least inclined to increase tax payments willingly in exchange for further service improvements compared to those in Jinja (71%). This is not surprising, given the fact that respondents in Kampala are more educated 15 and more informed than those in Jinja and are more likely to demand for better quality public services for the same level of taxes. In addition, people in Kampala are less likely to depend on government services; many depend on private services such as primary schools, hospitals among others. Table 3.12: Respondents Opinion on Tax Collection and Service Provision (%) Issues Jinja Kampala Combined Yes, mostly Are tax revenues collected Partly used to provide public Not at all services? Don t know Should people refuse to pay taxes until they get better services? Agree Partly Agree Disagree Refused to Answer Don t know % of the respondents in Kampala had at least university, college or vocational education compared to 44% in Jinja. To Pay or Not to Pay? Citizens Perceptions on Taxation in Uganda 33

36 Are you willing to pay more taxes if public services improved? Source: Survey Data Yes No Don t know Measures to improve use of tax revenues Table 3.13 presents the percentage of all respondents that agree, partly agree (50-50) or disagree on whether the given measures will work or not. The measures most favored by citizens are more information on tax assessment (91%), and allocation of tax revenues (90%), followed by stronger punishment of politicians (85%), and government employees (84%). These views are common both in Kampala and Jinja (see details in Annex A.9). From a citizen s perspective the measures suggested for improving the use of tax revenues can all be interpreted as trust-enhancing mechanisms. This is in line with studies such as Fjeldstad ( ), which indicated that one of the factors that determine taxpayers compliance is whether citizens perceive government to be trustworthy and acting in their interest. The survey data shows that majority of the respondents reject the involvement of police in tax collection. This points to the fact that administrative practices used to collect tax revenue play an important role in lowering or increasing the compliance burden. Coercion and intimidation should be restricted means of tax collection. Thus tax collectors need to engage the tax payers in order to understand the challenges that tax payers face. Tax collectors too need to be professional and mindful of the sensitivity tax collection has on compliance. Table 3.13: Respondents opinion on measures to improve the use of tax revenue (%) Measures Jinja Kampala Total Stronger punishment of government employees Stronger punishment of politicians More information on allocation of tax revenues More information on tax assessment Involvement of police in tax collection Source: Survey Data Agree Disagree Agree Disagree Agree Disagree Agree Disagree Agree Disagree Fjeldstad, O.-H (2004). What s trust got to do with it? Non-payment of service charges in local authorities in South Africa. The Journal of Modern African Studies, Vol. 42 (4) 34 To Pay or Not to Pay? Citizens Perceptions on Taxation in Uganda

37 3.3 Satisfaction Satisfaction reflects the overall assessment of a service by the user, based on his/ her experience. In this assessment, the person implicitly brings in his/her expectations or standards that in turn may also be influenced by the past experience of others in the community, one s educational level and awareness. Given the higher levels of education of the people in the two councils, it is likely that their expectations from services are higher in contrast to those of people in other parts of the country. Irrespective of how a person arrives at his/her assessment of satisfaction, it is an internal assessment on which he/she may act. Admittedly, satisfaction reflects personal judgments of users and can be measured only through the information provided by them (ADB & ADBI, 2007). In this survey, a two-stage approach for measuring satisfaction was used. Respondents were first asked whether they are satisfied, dissatisfied or neither satisfied nor dissatisfied with a given public service. For those who were satisfied, they were probed further and asked whether they are completely satisfied or partially satisfied. Thus the user feedback on satisfaction may fall into one of five categories: satisfied (completely or partially), dissatisfied and neither satisfied nor dissatisfied Overall satisfaction Respondents were asked if they were satisfied with the overall quality of public services provided by the government agencies. They were provided with three options: satisfied, dissatisfied and neither satisfied nor dissatisfied. The majority (79%) of the respondents said they were dissatisfied, 8% were satisfied and 13% were neither satisfied nor dissatisfied. In Kampala, 79% were dissatisfied, 10% were satisfied and 11% were neither satisfied nor dissatisfied. In Jinja 79% of the respondents were dissatisfied, 4% were satisfied and 17% were neither satisfied nor dissatisfied. By gender, 76% of the female respondents were dissatisfied, 7% were satisfied and 16% were neither satisfied nor dissatisfied. For men, 82% were dissatisfied, 8% were satisfied whereas 10% were neither satisfied nor dissatisfied (Figure 3.9). To Pay or Not to Pay? Citizens Perceptions on Taxation in Uganda 35

38 Figure 3.9: Respondents Overall Satisfaction with quality of public services Percentage Male Female Total Male Female Total Male Female Total Jinja Kampala Combined Satisfied Dissatisfied Neither satisfied nor dissatisfied Source: Survey data In addition to the overall satisfaction, respondents were asked about their satisfaction with twelve different services. These included: Primary Education; Secondary Education; Health centres (HC IIIs, HC IVs); Hospital (e.g. Mulago, Jinja hospital); Water supply (piped, boreholes etc); Sanitation; Garbage collection; Road Maintenance; Electricity; Law and order; Markets; and Agriculture extension. In general, all the services had very low levels of complete satisfaction. Complete satisfaction with markets and hospitals was the lowest, with only 3% of the respondents saying they were completely satisfied. Whereas Water supply; Law and order; and Electricity were the highest rated with 15%, 13% and 11% of the respondents saying they were completely satisfied (Figure 3.10). Both water and electricity provision has some element of private sector, which, exhibits higher levels of efficiency, this might have positively impacted on the respondents rating. The very low level of complete satisfaction of services provided by government is a critical issue of concern in Uganda, since it has a negative effect on the citizen s willingness to pay taxes. 36 To Pay or Not to Pay? Citizens Perceptions on Taxation in Uganda

39 Figure 3.10: Respondents rating of services provided by government (%) Percentage Completely Partially Dissatified Neither Satisfied nor Dissatisfied Source: Survey data In Kampala, hospitals and markets received the lowest rating, with 2% and 3% of respondents respectively saying they were completely satisfied. Again water supply; law and order and electricity had the highest rating with 19%, 19% and 16% of the respondents saying they were completely satisfied (Figure 3.11). Though higher than the combined score, the level of complete satisfaction is also very low in Kampala. To Pay or Not to Pay? Citizens Perceptions on Taxation in Uganda 37

40 Figure 3.11: Respondents rating of services provided by government- Kampala (%) Percentage Completely Partially Dissatified Neither Satisfied nor Dissatisfied Source: Survey data Compared to Kampala, Jinja had the lowest complete satisfaction rating. Agriculture extension, markets, road maintenance and sanitation had the lowest complete satisfaction rating, with only 1% of the respondents saying they were completely satisfied. On the other hand primary education and secondary education had the highest rating with 10% and 11% of the respondents respectively saying there were completely satisfied (Figure 3.12) 38 To Pay or Not to Pay? Citizens Perceptions on Taxation in Uganda

41 Figure 3.12: Respondents rating of services provided by government Jinja (%) Percentage Completely Partially Dissatified Neither Satisfied nor Dissatisfied Source: Survey data By gender, for male respondents, hospitals; markets and agricultural extension ranked lowest, with only 2%, 3% and 3% of the respondents respectively saying they are completely satisfied (Figure 3.13). On the other hand, for female respondents, markets, road maintenance and garbage collection ranked lowest with only 2%, 3% and 3% of respondents respectively saying they were completely satisfied (Figure 3.14). To Pay or Not to Pay? Citizens Perceptions on Taxation in Uganda 39

42 Figure 3.13: Respondents rating of services provided by government Males (%) Percantage Completely Partially Dissatified Neither Satisfied nor Dissatisfied Source: Survey data Figure 3.14: Respondents rating of services provided by government Females (%) Percentage Source: Survey data Completely Partially Dissatified Neither Satisfied nor Dissatisfied 40 To Pay or Not to Pay? Citizens Perceptions on Taxation in Uganda