Taxation Policies and Revenue Generation in Local Governments: A Case Study of Mbale City

Abstract

The study aimed to assess the contribution of taxation policies to revenue generation in local governments in Uganda, with a specific focus on Mbale City. The general objective was to evaluate how different taxation measures impact revenue streams. To achieve this, the study focused on three specific objectives: (i) to assess the effect of tax compliance on revenue generation, (ii) to examine the effect of tax credits and permits on revenue generation, and (iii) to assess the effect of tax rates on revenue generation in Mbale City Local Government. Utilizing a cross-sectional design, the research employed a sample of 36 respondents, derived from a population of 40 participants, using the Slovin's formula. The study’s findings revealed that tax compliance has a moderate effect on revenue generation, with a correlation of 55% indicating a positive but not strong relationship. It also revealed that tax credits and permits have a weak impact on revenue, with a correlation of only 40%, suggesting that while they are perceived as beneficial, their direct effect is limited. The study concluded that while tax compliance and tax credits are important, their individual impacts on revenue generation are constrained and influenced by other factors. Additionally, it was concluded that tax rates have a mixed effect, with a correlation of 50%, reflecting both positive and negative impacts on revenue. The study recommended enhancing tax compliance measures to improve revenue outcomes and suggested reviewing and optimizing tax credits and permits to ensure their effectiveness. Lastly, it recommended adjusting tax rates in response to economic conditions to balance revenue needs with maintaining competitive rates. The study underscores the need for a comprehensive approach that considers multiple factors to effectively boost revenue generation in local governments.