This past week I traveled to Uganda to speak to a new generation of thought leaders at the Nkumba University in Entebbe, Uganda. The Liberty and Entrepreneurship Conferences was put together by the Action For Liberty and Economic Development, and students from all over Africa came for a three day summit. I spoke on government and taxation, alongside speakers from the Language of Liberty Institute, Glenn Cripe, Andy Eyschen, and Kyle Varner.
I talked in great detail about the theft that is taxation, and addressed many interesting questions on the topic. In Uganda, and many other parts of Africa, taxes are used in a very different way. One primary concern is the protection of natural resources. The premise is that taxes need to be paid to prevent foreign nations and businesses from stealing all of Africa’s natural wealth.
It isn’t hard to disprove that this doesn’t work, as the people of Africa are already paying high taxes to their respective governments, and foreign nations and businesses are still taking the natural resources. As with any other government, instead of protecting these resources and letting nationals profit from their extraction, the people at the highest levels of government only tax the extraction for their own benefit, affording themselves a life of luxury, while most citizens live in poverty.
Presently China is building infrastructure all over Africa. These are free roads, but as the saying goes, there is free cheese in a mouse trap. Most of the construction of these roads only benefits the Chinese. Not only will they will be used in the future to extract resources, most of the physical labor is done by chinese workers. Many locals complain that the construction of these roads doesn’t even bring jobs. If the role of government is supposed to protect jobs, natural resources and local economy, it has completely failed.
Instead of a sales tax, there is a value added tax (VAT) that is charged throughout the supply chain, instead of relying on the thousands of retailers to collect it. Some larger retailers like supermarkets do print itemized receipts, and show that I paid an 18% VAT on a bottle of water. While many Ugandans praise government for helping with food and healthcare and providing drinkable water, the harsh reality is that they are really making these things more difficult to buy.
I couldn’t stop asking myself - if Uganda has 50 million people and tons of natural resources, why is the country so poor? Why haven’t these people extracted these resources and built themselves a thriving economy? Looking around I could see that all their labor was wasted on menial and inefficient tasks, like digging roadside trenches by hand. Where were all the machines to make this a fast and simple task, creating safe drainage and the faster construction of roads?
As it turns out, everything from construction equipment to the cars themselves have import taxes of 100% or higher. These high tariffs on a starving nation reduce the amount of labor saving technology from import, slowing down the development of the nation’s infrastructure.
This effect isn’t limited to construction, but it happens with medicine and technology as well. Everything from smart phones and laptops to medical equipment, even used and outdated technology, carry high import costs. With limited access to new books in schools, this technology could greatly improve access to more recent information and educational programs like the Khan Academy, and Udemy.
In theory, the government’s claim to an import tax is “if you can afford that expensive equipment, you can afford to import it”. The reality is that if I have access to a fixed amount of capital like $10,000 to import equipment, a 100% tariff means I can only important $5,000 worth of equipment. The other half of my capital now goes to a tax and the entire nation suffers. That tax might also divert my investment to another country that doesn’t have such a high tax.
Some are protective of the government because it provides some healthcare services to its people. All it takes to change their opinion is to show them that if government stopped taxing imports, the entire nation would have access to better technology and medicine, and still affordable healthcare.