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As the global fight against climate change intensifies, nations around the world are exploring innovative policy tools to reduce carbon emissions. One of these tools is a carbon tax.
A carbon tax is a tax which places a financial cost on carbon emissions and this has been successfully implemented in various countries as a measure to curb pollution and to shift economies toward green energy. At the recently concluded COP29 at Baku, the crucial function played by carbon taxes was discussed as their revenue is necessary to fund the green energy transition.
While Uganda is not among the top carbon emitters globally, the impacts of climate change, including unpredictable rainfall and droughts are already being felt across the nation.
Currently, 27 countries have implemented a carbon tax, including; Argentina, Canada, Chile, China, Colombia, Denmark, Japan, Kazakhstan, Korea, Mexico, New Zealand, Norway, Singapore, South Africa, Sweden, the UK, Ukraine, and the European Union member states.
Meanwhile, several other countries, such as Brazil, Brunei, Indonesia, Pakistan, Russia, Serbia, Thailand, Turkey, and Vietnam, are considering adopting similar measures.
In Africa, South Africa’s Carbon Tax Act came into force on 22nd May 2019 with its preamble highlighting the polluter pays principle (The expenses related to addressing pollution, environmental degradation, and the resulting negative health impacts, as well as the costs of preventing, controlling, or reducing further harm to the environment or public health, must be borne by those accountable for causing the environmental damage.)
Section 3 spells out the persons subject to the tax and provides that if a person conducts an activity in the Republic resulting in greenhouse gas emissions above the determined threshold, he/she will be required to pay the tax.
Uganda
Uganda is yet to adopt a Carbon Tax. However, it has used the available tax legal framework to address the clean energy transition. The Income Tax (Amendment) Act, 2024 is of the position that investments dealing in the manufacture of electric vehicles, electric batteries or electric vehicle charging equipment or fabrication of the frame and body of an electric vehicle are entitled to an income tax exemption for a period of one year. This is aimed at encouraging investment into green infrastructure.
On the international scene, Uganda is a party to any international carbon tax agreements. However, it signed the Paris Agreement in October 2015 and ratified it on September 21, 2016 whose main focus is to reduce green gas emissions.
Article 4 of the Agreement provides that parties to the agreement shall aim for peaking of greenhouse gas emissions in an expeditious manner. It also states that each party shall (Prima facie, the use of the word “shall” in a provision gives the provision a mandatory character per Sitenda Sebalu v Sam K Njuba & The Electoral Commission Election Petition Appeal No. 26 OF 2007) prepare & maintain successively nationally determined contributions(NDCs) that it intends to achieve.
NDCs articulate the mitigation and adaptation contributions towards the implementation (aspirations) objectives of the Paris Agreement in 2030. They establish targets, measures and actions which prescribe the domestic contributions aimed at achieving the objectives of the Paris Agreement.
Bringing into force a carbon tax would bring about some challenges with the first one being that Uganda has a narrow tax base. Following the recent FY 2024/25 budget speech, it has been established that Uganda’s tax-to-GDP ratio currently stands at 14.2%, an appallingly low figure.
This implies that the number of taxpayers is low compared to the prevailing economic output and that most of the economic activity is not taxed. According to Afrobarometer, a pan-African independent research network that tracks public opinions on economic, political, and social issues in Africa, only 1 million Ugandans actively pay taxes, despite 3.5 million being registered as taxpayers by the end of the 2022/2023 fiscal year.
This is alarming for a nation with a population of 45.9 million people. Introducing an extra tax in form of a carbon tax will end up overburdening the already disgruntled few tax payers which will greatly stifle their operation capacity. Broadening the tax base is more necessary than ever.
Another glaring issue is the underdeveloped carbon emissions monitoring infrastructure in Uganda. The National Greenhouse Gas Inventory (NGHGI) system, which is managed by the Ministry of Water and Environment, helps track emissions and removals, particularly in sectors like agriculture, forestry, and land use.
However, it faces a plethora of challenges such as limited data availability. The reliance on occasional estimates, external data sources, or expert assessments for information such as animal breeds, manure management practices, and fertilizer usage leads to the reporting being rated low on the completeness criterion. A well-developed Carbon emissions monitoring system comes in handy when it comes to making carbon tax assessments as it ensures transparency and accountability.
Conclusion
Uganda may not be entirely ready for a carbon tax yet, but there is potential for its introduction if we can get it right with the policy and institutional reforms. Key factors like carbon tax administrative capacity, green energy infrastructure, and public awareness need to be addressed. Moving ahead, the carbon tax conversation is worth having.
Lwanga Eric Hannington
LLB Graduate from Cavendish University, Uganda.