Fiscal Exchange

An Assessment of the Influence of Interest Groups on Tax Policy and its Effect on Voluntary Tax Compliance - A Case Study of the Private Sector Foundation of Uganda

Since taxes are so consequential to every business decision, the tax system over time reflects a large number of political bargains made by the state with different interest groups (Herbst 2000). Business associations form part of these groups, and in Uganda the Private Sector Foundation of Uganda (PSFU) represents a seemingly dominant interest group. When business works through strong private sector organisations, rather than allowing individual companies to lobby for private benefits, the government’s rent-seeking behaviour is discouraged (Kalema 2008). Business interest groups such as the PSFU are generally perceived to be weak and unable to effectively lobby for long-term policies or hold governments to account (Maxfield, Schneider 1997, Kalema 2008, Bwalya et al 2011). However, during the post budget speech of 2012, the PSFU chairman stated that 80% of their recommendations had been incorporated into the planning and budgeting. Thus, this warrants an investigation of the influence of the PSFU on tax policy.

The purpose of this paper is to investigate the extent to which the PSFU has influenced revenue collection, expenditure, and accountability over a period of time, and in turn, how this may ease compliance and thereby tax administration.

Several budget speeches and pieces of legislation will be reviewed with an aim of identifying aspects that are relevant to the private sector. Interviews with the current and previous administration of the PSFU and government officials will be conducted in order to establish the link between the policies and the PSFU.

The result will be to increase knowledge on state-business relations within the the context of the fiscal contract theory. Potential findings could be that the foundation is influential in terms of legislation but not always in terms of administration. In addition, individual companies may be able to bargain better individually than collectively.