By: CPA Silajji Kanyesigye Baguma
Managing Partner
RKA & Co. CPA
As we navigate through the complexities of economic challenges, one significant concern emerges: the looming threat of escalating costs driven by expected fuel tax hikes. The proposed fuel tax hike has sparked significant concerns, particularly from a business perspective. Production costs are likely to surge due to heightened fuel expenses, businesses will find themselves compelled to pass these additional costs onto consumers. This could lead to price hikes across various goods and services, exacerbating inflationary pressures and potentially dampening consumer spending. Moreover, such price increases could provide opportunistic businesses with a pretext to inflate their prices beyond what is justified solely by the fuel tax hike. Fuel serves as a linchpin for various business operations, facilitating production, marketing, and distribution processes. Consequently, any increase in fuel prices invariably raises the cost of production, posing challenges for manufacturers who heavily rely on diesel as a supplementary power source.
To mitigate the adverse effects of the proposed fuel tax hike, proactive strategies must be implemented within the business community. Firstly, there is a pressing need to reevaluate production processes to minimize costs. This may entail streamlining operations, optimizing resource utilization, and exploring alternative energy sources where feasible. Additionally, businesses may need to consider strategic staff reductions to contain labor costs without compromising operational efficiency. Furthermore, maintaining product quality amidst cost-cutting measures is imperative to uphold consumer satisfaction and market competitiveness. However, there's a risk that some businesses might compromise product quality to offset rising production expenses, potentially tarnishing their reputation in the long run.
Import substitution policies may face challenges as businesses opt for cheaper imports due to elevated domestic production costs. This could undermine efforts to promote local industries and contribute to trade imbalances. Government intervention is crucial in alleviating the burden imposed by the fuel tax hike on businesses. Providing cost cutting incentives to mitigate energy costs can offer relief to manufacturers, enabling them to remain competitive both domestically and internationally. Additionally, facilitating access to affordable financing for local manufacturers can help alleviate the strain of increased capital costs.
Reviewing tax laws that disproportionately impact production costs is paramount to fostering a conducive business environment. For example non tax deductability of interest paid to financial institutions forces manufacturing entities to absorb this interest in cost of production which makes our locally manufactured become more costly on regional market hence losing competitiveness. Tax incentives aimed at reducing the tax burden on businesses can stimulate investment and spur economic growth.
In light of these challenges, many business will have some disagreements with the tax administration which definitely require the need to explore alternative dispute resolution (ADR) mechanisms, particularly in tax disputes. In the realm of tax disputes, Alternative Dispute Resolution (ADR) stands as a beacon of efficiency and understanding. ADR mechanisms, including mediation, arbitration, and neutral evaluation, offer a confidential, less formal, and less stressful alternative to traditional court proceedings. ADR facilitates dialogue and collaboration between taxpayers and tax authorities, fostering a deeper understanding of each other's perspectives and business operational needs to remain competitive. This enables parties to resolve conflicts swiftly and amicably, with the potential to address over 50% of disputes effectively, thus enabling taxpayers to improve trust in URA tax systems and taxpayer compliance.
Despite its benefits, recent challenges have emerged in the ADR landscape. ADR Regulations of 2023 mandating a narrow window ( 7 days) for applying for ADR, coupled with the absence of ability to freeze on the timeframe for accessing Tax Appeals Tribunals, present practical hurdles. These constraints are potentially hindering access to ADR, leading some parties to bypass it in favor of traditional litigation which increases cost of compliance. To address these challenges, policymakers may need to revisit ADR regulations, allowing for more flexible application timelines and implementing measures to freeze the time limit for accessing tax appeals tribunals during ADR proceedings. By enhancing accessibility and procedural fairness, ADR can realize its full potential as a cornerstone of efficient tax dispute resolution, improving tax compliance and growing the tax base.
Beyond cost savings, ADR fosters trust and cooperation between taxpayers and Uganda Revenue Authority (URA). By providing a platform for direct engagement and collaborative problem-solving, ADR reduces the adversarial nature of disputes and promotes a culture of mutual respect and understanding. ADR represents a transformative approach to tax dispute resolution, offering a pathway towards efficiency, fairness, and trust building. By embracing ADR, stakeholders can unlock the full potential of collaborative problem-solving, paving the way for a more harmonious and effective tax administration system.
Together, we can navigate these turbulent times and emerge stronger, more resilient, and better prepared for building our Uganda together.
