Analysis of low tax revenue in Uganda (1980-2018)
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Tax revenue has an importance in the economy of Uganda. Despite the investment being done in the sector, significant impact on the economy hasn‘t yet been realized. This study investigates the impact of low tax revenue on Uganda ‘s economy. It breaks down the impact in short run effect, long run effect and casual relationship between tax revenue and gross domestic product in Uganda between the period 1980 and 2018. The study used secondary data from International Monetary Fund, World Bank and bank of Uganda datasets. GDP data, Inflation Rate data, REER data and Quantity of tea export data spread sheets. The data was analyzed and presented using various tests and statistics; descriptive statistics showed that tax revenue and investment level have a high positive skewness of 1.533 and 1.7333 respectively. ADF test showed investment rate, GDP, inflation rate are non stationary at level one while the first differenced investment rate is stationary at 10% confidence level. The first differenced inflation rate and tax revenue are stationary at 10%. Jarque Bera test for normality showed that tax revenue is normally distributed with a probability greater than 5%. Granger causality test results reveal that not all independent variables do cause an increase in tax revenue, a causal relationship existed between tax revenue and inflation rate, investment rate and literacy rate. During the long run, inflation rate has a cointegration relationship with investment rate and tax revenue. The results revealed high positive significant relationship of 0.0895 between Gross Domestic Product and tax revenue in long run in Uganda. This implies that as tax revenue increases, GDP also increases by 8.95%. The results also reveal that there is no causal relationship between these two variables. The study concluded that tax revenue has a significant relationship on gross domestic product in long run and not in short run. The government should do more investment in short run to increase its amount of taxes it collects. Gross Domestic Product of the country has a long run effect on Production rate. Unemployment rate has a short run effect on tax revenue but no short run effect. Tax revenue has a long run effect on investment level of a country and a short run effect.