Revisit tax policy to catalyse economic growth

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OPINION

By Habibu Sseruwagi

The debate between lower taxes to widen the tax base versus higher taxes on fewer people and industries is a significant one in economic policy.

The case of Singapore provides an insightful example of how a country can develop by leveraging tax policy.

Singapore’s tax system has been instrumental in its development. The country introduced income tax in 1947 under the British colonial government, and since gaining independence, it has focused on creating a competitive tax environment to attract foreign investment and stimulate economic growth.

The key tenet of Singapore’s tax policy is to keep tax rates competitive for both businesses and individuals. This approach is designed to attract foreign investment, encourage entrepreneurship and avoid overburdening taxpayers.

The rationale behind lowering taxes to widen the tax base is grounded in the Laffer Curve concept, which suggests that there is an optimal tax rate that maximises revenue without overtaxing the population.

By lowering taxes, a government can incentivise economic activity, leading to more businesses and individuals paying taxes, albeit at a lower rate. This can result in a broader tax base, increased employment, higher productivity, and, ultimately, more tax revenue.

Singapore’s development strategy included maintaining a low corporate tax rate of 17%, which is relatively low compared to other countries. This has allowed the country to maintain strict fiscal discipline and use tax incentives as a tool to attract foreign direct investment, which has been crucial for job creation and economic growth.

Singapore’s fiscal policies have been a cornerstone of its economic success. The government’s focus on macroeconomic stability, support for economic growth and promotion of social equity has helped steward the country’s progress.

By investing in infrastructure, education, healthcare and other essential public services, Singapore has created a conducive environment for businesses and individuals to thrive.

The introduction of the Goods and Services Tax (GST) in 1994 was a strategic move to diversify the tax revenue sources and make the fiscal position more resilient against economic changes.

This balance of income and consumption taxes has strengthened Singapore’s fiscal position, allowing it to respond effectively to economic challenges.

In conclusion, Singapore’s experience demonstrates that lower tax rates, when strategically implemented, can widen the tax base and contribute to overall economic development.

The country’s ability to attract foreign direct investment and promote entrepreneurship has been facilitated by its competitive tax rates and prudent fiscal policies.

While higher taxes on fewer people and industries might provide short-term revenue, it can discourage investment and economic activity, which can be detrimental in the long run.

Singapore’s success story underscores the importance of a balanced and competitive tax system in achieving sustainable economic growth. In summary, Singapore’s development has not been due to higher taxes, but rather a strategic tax policy that promoted a competitive environment and attracted investment, which in turn widened the tax base and supported the country’s impressive economic growth.

As Equal opportunities, higher taxes will bring in more disparities and widen the gap between the poor and the rich which is very unfortunate.

By having higher taxes, we are only making URA officials rich and there will be a cartel on how to dodge these taxes through paying bribes.

Let us make taxes affordable and all Ugandans will be happy to pay taxes without being forced. Putting such a system not known by wananchi in people’s businesses in the name of EFRIS is like putting Police on someone’s business and this brings in discomfort to customers and business owners.

A case in point is some businesses have even gone ahead to increase prices on products because of EFRIS costs and there is always a system breakdown because of slow connectivity of internet, leading to slow business. I believe this whole thing was not thought out properly. URA can still collect taxes without inconveniencing people with the EFRIS system.

The writer is a Commission Member of the Equal Opportunities Commission