What Can We Learn from the Uganda Revenue Authority’s Approach to Taxing High Net Worth Individuals?
Wealthy people contribute a significant share of the total revenue collected through personal income tax (PIT) in high-income countries. This is not the case in most low-income countries, where the bulk of revenue from PIT is collected from people who are in formal employment, especially in the public sector. In most cases, PIT is collected by employers and remitted to the tax authority. The problem is not an absence of laws providing for the taxation of wealthy individuals (commonly referred to as High Net Worth Individuals (HNWIs)). Rather, these laws are rarely implemented. On the one hand, this results in losses of income tax revenue, and, on the other, in severe inequity in the distribution of the tax burden. Successfully levying PIT on HNWIs requires a special organisational effort on the part of the tax authority. As far as we know, only three countries in Africa – Mauritius, South Africa and Uganda – have active systems in place to focus on the tax affairs of HNWIs. The Uganda Revenue Authority’s (URA’s) HNWI unit was set up in September 2015. Within the first year of its operation the unit increased revenue collection by UGX19 billion (USD5.5 million), and the proportion of wealthy individuals who filed income tax returns increased from 13 per cent to 78 per cent. These improvements were registered even before the URA audited any of the individuals. A number of factors explain this success story. First, and most importantly, URA’s top management is actively engaged in and committed to the decision to tax these individuals. Second, once the URA obtained some information on potential HNWIs, it proceeded to act on its findings without waiting until it had in place a set of formal criteria for identifying these individuals. Most of the lessons are being learnt along the way. Third, the URA has not shied away from the fact that a large proportion of HNWIs are politicians or politically influential.