Uganda
| Author | Luc De Wulf |
| Pages | 113-126 |
Page 113
During the 1990s, Uganda undertook a comprehensive economic reform program that included liberalizing external trade and modernizing its customs administration. As a result of those initiatives, Uganda's trade tariffs are now among the lowest and most streamlined in Sub-Saharan Africa. Moreover, the government created an independent revenue agency, the Uganda Revenue Authority (URA), to improve overall revenue collection. The initiatives have enabled the authorities to improve their revenue mobilization performance, ease trade operations, and initiate a fight against corrupt practices in the customs service.
This chapter begins by highlighting the key elements that led to the creation of the URA. It then turns to a review of customs reforms before looking at the future of reform. This chapter is based on a field study undertaken in June 2002 and was updated in November 2003 with information obtained from the URA.
Toward the end of the 1980s, the minister of finance became frustrated with the ministry's revenue performance and looked for ways to strengthen revenue collection. In 1990-91 and 1991-92, Uganda's fiscal revenues were among the lowest in the developing world, averaging only 7.5 percent of gross domestic product (GDP). Following the turbulent years of President Idi Amin and President Milton Obote, corruption remained rampant, particularly in the area of revenue collection. In the context of periodic meetings of finance ministries organized by the Commonwealth countries, Uganda's minister of finance met with his counterpart from Ghana, who a few years earlier had established an autonomous revenue agency in his country. Such an approach to managing the customs service had been inspired by Margaret Thatcher's reform of the United Kingdom's public sector, which drew on a private sector business model.
The United Nations Development Programme supported the search for new approaches to make the customs service more efficient, provided the funds for a team from Uganda's Ministry of Finance (MOF) to visit Ghana, and commissioned a consultant study to define the steps needed to create an independent revenue authority. The United Kingdom's Department for International Development (DFID) supported the creation of the URA with a UK£4.6 million grant, UK£3.6 million of which was provided in the form of technical Page 114 assistance, with the remainder as a capital grant. This United Nations Development Programme study compared salary levels in the private and public sectors with a view to suggesting a salary level for the customs service that would enable it to attract qualified personnel. Following internal discussions of the study, a new revenue regulation was drafted and presented to the parliament in early 1991. Following approval of this legislation, the ensuing legislation led to the creation of the URA in September 1991.
The main difference between the fiscal department that the URA was to replace and the URA itself was that the URA would pay better wages and would have greater flexibility in managing its human resources, including the ability to fire corrupt staff members. In establishing an independent revenue authority, Uganda led the way to similar initiatives in other Sub-Saharan African countries-Kenya, Malawi, Rwanda, Tanzania, and Zambia-that have also taken this important step to strengthen revenue mobilization. Efforts to enhance revenue and fight corruption were high on the URA's agenda, whereas trade facilitation received little attention. Moreover, the private sector was not consulted during the process of setting up the URA.
The URA was set up as an autonomous agency in the finance portfolio and was put in charge of collecting and accounting for all revenue provided for in the tax legislation. Initially, the URA was empowered to advise the government on tax policy issues, but later the Cunningham Report (DFID 1995) identified a number of institutional issues at the URA that prevented it from improving its operational performance to the desired level of effectiveness. In reaction to those suggestions, the government made some changes to strengthen the URA's management and autonomy. The government appointed a new board and a commissioner general, made other changes in the senior management team, passed legislation intended to clarify the role of the board and its relationship to the URA's management, and clarified the relationship between the MOF and the URA. The changes also granted the MOF greater authority in tax policy, while giving the URA greater flexibility in tax administration plus a somewhat larger budget. In addition, the government created the Tax Tribunal, which was intended to give taxpayers a means of recourse against disputable tax assessments and abuse by revenue officers. Clearly, those changes were largely intended to enhance the URA's revenue performance and the government's compliance with Enhanced Structural Adjustment Facility commitments related to the mobilization of larger budget revenues. The DFID supported the URA by providing an external adviser with line management responsibilities. Unfortunately, the changes did not yield the expected results.
The URA's Board of Directors consists of a chairperson, representatives of the MOF and the Ministry of Trade and Industry, a representative of the Uganda Manufacturers Association, and the URA's commissioner general (since 1998). The minister of finance is authorized to appoint two additional members on the basis of the professional expertise that they can bring to help the URA function efficiently. The minister of finance is also authorized to impart directives to the board regarding the performance of its functions, and the board must comply with those directives. The legislation was drafted in such a way as to give equal and conflicting power to both the board and the commissioner general to manage the URA. This allocation of power is likely to lead to conflicts and runs counter to effective management. Excluding the URA from the tax policy field would appear to be well intentioned, but its total exclusion from such discussion has at times been counterproductive.
The URA currently has a commissioner general, two deputy commissioners general, and four revenue departments: the Customs Department, the Domestic Indirect Taxes Department, the Domestic Direct Taxes Department, and the Expansion and Collection Department. The following departments support the revenue departments: Legal Affairs, Information Technology, Human Resources, Finance, Administration, and Internal Audit and Investigation. There is also a Staff Monitoring Unit.
While the URA was being created, extensive discussions took place regarding the formula that would set its operational revenues so as to endow it with a solid revenue base that would ensure its efficient Page 115 operation. Some argued that the URA should be allowed to retain a share of the revenues it collected. One formula would have established that the URA could retain 2 to 4 percent of collected revenues, depending on the amount specified in the budget each year, as a way to motivate the URA to enhance its revenue collections. Although the URA's budget is set during the regular budget process without any explicit reference to a share of collections, in recent years that share has amounted to 3.0 to 3.5 percent of revenue collected.
Staff salaries were adjusted upward and set at levels comparable to the highest salaries paid to the staff members of any large organization in the country, namely, those at the Bank of Uganda. However, since the URA's creation, salaries have been eroded by inflation and by a lack of the systematic adjustments called for by the URA's original provisions. By 1999, URA salaries ranked twelth in a sample of 50 private sector comparators, and by 2002 they had slipped even further, ranking seventeenth. Salaries at the Bank of Uganda are currently 40 percent higher than those at the URA. The wage compression that has been taking place over the years has affected lower-level staff more than management. Although the MOF was to approve a 10 percent basic salary bonus for all staff members in years when the URA surpassed its revenue target, this bonus was approved only in 1994 and 1998. In other years, the revenue target was set at an unrealistically high level. For 2002, the bonus formula was changed, and the staff was to share 15 percent of the revenue collected in excess of the budgeted amounts.
In 1991, all MOF Revenue Department staff members had to apply for their jobs at the newly created URA. A committee made up of MOF representatives and the URA's core team screened the applications, assisted by a human resource officer from the Bank of Uganda. About 70 percent of the applicants were accepted, and the remaining 30 percent were redeployed in other MOF departments, with some subsequently affected by the retrenchment polices of later years. Senior staff members-a total of 42 in 2002-were recruited on the basis of three-year contracts. The board is authorized to renew those contracts only once for people in the same position; thus managers who are not promoted must leave the URA. Nonmanagerial personnel are hired following a six-month probationary period, but few, if any, are not confirmed following the probationary period.
The early customs...
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