INFORMAL SECTOR AN INVISIBLE FORCE WITH VISIBLE IMPACT

DORIS AKOL COMMISSIONER GENERAL

MAY 2016 OPEN MINDS FORUM

Talking Points!
Facts about the Informal sector

Understanding the Informal Sector

Characteristics of the Informal Sector

Drivers of the Informal sector

URAs Initiatives to Tap into the Informal Sector

Way Forward

DEVELOPING UGANDA TOGETHER

Facts about the Informal sector

The Informal sector is estimated at 49% of the GDP
(UBOS, 2014). In 2002 the size was 43%
Top ranking economic sectors which are highly
informal;- Agriculture (27%), Wholesale & Retail
(24%), food processing (15%) and Manufacturing
(14%)
Employs more than 70% to 80% of the labor force
(UBOS, 2014).

59.8% of Ugandans are employed in the nonagriculture informal sector (ILO,2012).

DEVELOPING UGANDA TOGETHER

Social Economic Development

Our ambitions for social economic development as a
country are outlined in the National Development Plan
(NDP).
A transformed Ugandan society
from a peasant to a modern and
prosperous country within 30
years
From a predominantly low
income of a per capita of USD
506
To a middle income by 2017 and
per capita of USD 9,500 by 2040.
This transformation is expected to be
fully financed through Tax revenue
DEVELOPING UGANDA TOGETHER

Introduction
Revenue mobilization is
key to the growth and
sustainability of
developing countries
economies.

However, as a major
source of illicit financial
flows, the informal sector,
or the shadow economy, is
a major hindrance to
revenue mobilization.
DEVELOPING UGANDA TOGETHER

Introduction
Ugandas informal sector is
relatively large estimated at
49 percent of GDP, yet it
contributes minimally to
revenue.
The informality cuts across
agriculture, wholesale and
retail trade, construction,
transport, etc.

DEVELOPING UGANDA TOGETHER

Informal Sector
Agriculture

Services

DEVELOPING UGANDA TOGETHER

Industry

Who is in the informal Sector?

Rental property ( 3 houses )
Approximately 300,000 each
house a month making a total of
900,000 each month.
Approximately 700,000 UGX a
month considering expenses.
Potential tax approximately
40,000 UGX.
Teacher
Earns 270,000 UGX a month
Pays tax 3,500 UGX each
month
Should the teacher
pay tax and not the
landlord ?
DEVELOPING UGANDA TOGETHER

Who is in the informal Sector?

Poultry farmer ( 200 chicken )
Approximately 150 eggs a day
considering expenses
Approximately 675,000 UGX a
month
Potential tax approximately
34,000 UGX.

Nurse
Earns 320,000 a month
Pays tax 8,500 each month
Should the nurse
pay tax and not the
poultry farmer ?
DEVELOPING UGANDA TOGETHER

Understanding of the Informal

SectorAll unregistered economic activities that contribute to
the officially calculated Gross National Product.

Hidden Activities

Predominantly cash based

transactional activities e.g.
hair dressing

Unregulated

NB: Informal sector not small or illiterate e.g. transport sector,

downtown, retail, wholesale add real estate e.t.c.
DEVELOPING UGANDA TOGETHER

10

Facts about the Informal Sector

Agricultural sector

Leakages

Contributes 27%
to GDP and only
2% to tax revenue.
Most agriculture is
done on
subsistence basis.

Existence of
Middlemen in the
value chain (many
are illiterate, brief
case type and
manipulative).

DEVELOPING UGANDA TOGETHER

11

Facts about the Informal sector

Leakages

Wholesale and Retail

2nd Largest contributor to informal

sector (24%) and 24% to revenue.

Vague addresses, Tax payer mutation,

brief case businesses, hidden
transactions, eg. Homes are serving as
warehouses and a desk in town serves
as the office. Joint renting of shops,
poor book keeping, among others.

DEVELOPING UGANDA TOGETHER

12

Informal Sector Potential FY 2014-15?

SECTOR
Service
Professional
Services
Hotel and
Restaurant

UGANDA

RWANDA

TANZANIA

KENYA

GDP , REV
(2.94%, 1.18%)

GDP, REV
(2.33%, 1.41%)

GDP, REV
(1.3%, 2.0%)

GDP, REV
(2.1%, 0.1%)

(3.45%, 1.27%)

(2.13%, 1.59%)

(1.1%, 2.9%)

(0.8%, 2.0%)

Transport
Real Estate
Agriculture

(2.80%, 1.89%)
(4.76%, 1.31%)

(2.94%, 3.06%)
(6.22%, 0.37%)

(4.3%, 6.4%)
(3.7%, 0.6%)

(8.7%, 5.2%)
(7.9%, 12.3%)

(26.28%, 0.7%)

(32.74%, 0.3%)

(28.9%, 0.5%)

(27.6%, 1.8%)

(0.75%, 1.82%)
(8.10%, 2.25%)

(1.65%, 1.30%)
(7.33%, 3.15%)

(3.7%, 10.3%)
(12.5%, 2.4%)

(0.8%, 0.4%)
(5.0%,2.3%)

Industry

Mining
Construction

DEVELOPING UGANDA TOGETHER

Sectoral Contribution (Revenue Vs. GDP

Rwanda

Tanzania

Uganda

Agriculture Sector Contribution

2012/13

0.61%

2013/14

0.76%

2014/15

0.70%

2012/13

0.42%

2014/15

0.54%

2012/13

0.60%

Kenya

2014/15

22.00%

GDP

23.69%

Revenue

22.37%

0.03%

2013/14

2013/14

23.25%

21.43%
21.58%
33.20%
33.00%

0.04%

33.00%

0.29%
21.39%

2012/13

1.66%

2013/14

1.82%

2014/15

1.76%

0.00%

5.00%

25.80%
27.30%

10.00%

15.00%

20.00%

DEVELOPING UGANDA TOGETHER

25.00%

30.00%

35.00%

Drivers of the Informal Sector

Procedures for
formalization
remain complex
and unknown.

Regulationsunder regulated
/enforcement in
some sectors e.g.
Boda bodas,
Kaveera etc.

DEVELOPING UGANDA TOGETHER

Porous Borders

15

Informal Sector Attributed to:

The desire by the actors to operate outside the tax

system.
Limited understanding of the registration process.
Weak business registration regulations
Predominant use of cash as opposed to traceable
payment means

DEVELOPING UGANDA TOGETHER

Addressing the Informal Sector

Being approached from two perspectives;

Perspectives

The Legal /
Policy
framework
The
Administrative
framework
DEVELOPING UGANDA TOGETHER

17

Transport
Advance Income Tax for Passenger and Freight Transport

Improve compliance in the transport sector by levying a flat

fee of tax i.e. 50,000/= per ton for goods vehicles and
20,000/= per passenger per year for PSVs.
May 4, 2016

DEVELOPING UGANDA TOGETHER

18

Compliance Measures
Any taxpayer receiving goods and services above
Shs.5M will be required to provide a TIN of the
supplier before they can claim a deduction;

May 4, 2016

19
DEVELOPING UGANDA TOGETHER

Initiatives from the Legal /Policy

framework
Simplifying the presumptive regime
TIN requirement for Govt suppliers and
employees
Any invoices for supplies above 5mn must
bear a TIN.
Regulators or Licensing authorities should
require a TIN for any one they give a practicing
certificate or a license.
Mandatory payment of tax for all PSVs and
Goods Motor-Vehicles at time of renewal of
annual licenses
DEVELOPING UGANDA TOGETHER

20

Administrative Initiatives
Collaboration with
local
authorities
and URSB
to
identify,
register
and new Taxpayers.
(TREP). In 2014/15
we
registered
43,587
new
taxpayers who paid
us
Ug
shillings
15.79bn.

Ministry of
Local
Government

Kampala
Capital City
Authority

TREP

Uganda
Revenue
Authority

DEVELOPING UGANDA TOGETHER

Uganda
Registration
Services
Bureau

Administrative Initiatives
Electronic Cargo
Tracking for
trucks in transit
Tax education
materials in local
languages
Rental income
project to register
potential taxpayers
DEVELOPING UGANDA TOGETHER

22

Administrative Initiatives
Introduction of presumptive regime
Mandatory payment of tax for all PSVs and Goods
Motor-Vehicles at time of renewal of annual
licenses
Reaching out through media engagements, News
paper articles, tax clinics ( tailored to specific
sectors/interest groups), appreciation
(Omugano)etc
Simplification of tax returns (now using mobile
phone payments).
Partnering with the local governments to be the
key champions of tax education.
DEVELOPING UGANDA TOGETHER

Administrative Initiatives
Way forward

Receipts
campaigns

Encouraging the
use of receipts
in transactions

Electronic fiscal
devices

These
gadgets
will be collecting
data
from
gazzetted
Taxpayers
in
real time

National IDs

Making use of
these
to
minimize
Taxpayer
mutation.
We
plan to interface
with National ID
system
24

DEVELOPING UGANDA TOGETHER

Our Wish !!!

Registration: A
mandatory requirement
for all Ugandans to have
a national identification
which can be used as
unique identifier for all
registration requirements
integrated with URA TIN!

Associations: Lobby
for a policy to enforce
Mandatory
membership of
business
establishments to
designated
Associations/cooperati
ves within their areas
of Jurisdiction.

Reduction of cash
economy; Laws that
put thresholds on
cash transactions,
encouraging other
medium of
transacting other
than cash

25
DEVELOPING UGANDA TOGETHER

If everyone pays
a little, no one
has to pay too
much!
DEVELOPING UGANDA TOGETHER

27
DEVELOPING UGANDA TOGETHER