A political economy of revenue reforms in Uganda: business interest groups’ influence

Abstract

Taxation intrudes every home to the extent that it may cost one the loss of liberty and/or property. This begs the question, ‘what happens when the state’s appetite for revenue breeds unpopular revenue reforms or when members of a group are desirous of having their tax burden lessened by statute?’ The current literature on taxation and governance addresses representation, accountability and expenditure priorities. This has left the issue of taxation and the rule of law understudied, especially within the context of the checks and balances. In this thesis I present an analytical framework that demonstrates the link between taxation and the rule of law and make the argument that taxation presents positive implications for the rule of law when firms act collectively and when the courts enjoy judicial independence. In short, the need for additional revenue leads to enactment of laws or enforcement of existing laws, which increases the tax burden. Consequently, contestation ensues between the State and business interest groups or firms which may seek the intervention of the executive or legislature (lobbying) or judiciary (litigation) or even stage protests. Conflict between business interest groups and the State is bound to emerge because the reforms tend to reduce profitability or undermine the cash flows of the enterprises. Ultimately, the arena and outcome of the contest over the revenue reforms has a bearing on the rule of law. Using case study approach, I analyse various cases of revenue reform which were carefully selected from a variety of Bills and Acts of Parliament, particular court decisions, and public discourse in a bid to demonstrate the diversity in revenue reform. I used facts from newspapers, debates in the parliamentary hansards, information from budget speeches, court decisions and interviews to analyse the interaction between business interest groups and the State. I find that the character of the State (from the colonial era to date) has changed, thus affecting the revenue bargaining environment (Chapter 3). Business interest groups influence revenue reforms by blocking or softening of them (Chapter 4 and 5) and do so through lobbying, protests and litigation (Chapter 6). I also find that firms set the revenue reform agenda when seeking tax exemptions from the State and sometimes cause reform by litigating against existing tax measures. The blocking or softening of a reform may not mark the end of the bargaining process because a blocked reform can be reintroduced. These findings enrich political economy theories of democratic governance by demonstrating the role of business interest associations in the process of making policy and its implications for policy change. I draw the conclusion that, since taxation breeds contestation, it presents positive implications for the rule of law when firms act collectively and when the courts enjoy judicial independence. I make recommendations focused on the strengthening of the organizational capacity of business interest groups, increasing the independence of the judiciary and areas for further research i.e., the effect of oil revenue on democracy in Uganda and the influence of small-scale business interest groups on policy. My most significant contribution to the debate on taxation and governance is the discussion of courts of law as an arena for revenue bargaining and analysis of litigation as a revenue bargaining strategy.