The Independent Uganda: You get the Truth we Pay the Price
But expert opinions diverge on the suggested tax measures aimed at bolstering the government’s spending strategy
Kampala, Uganda | THE INDEPENDENT | Uganda government is proposing to raise spending by 10% to Shs 58.3 trillion in the upcoming FY 2024/25 amidst concerns of budget cuts including parliament.
The proposed budget presented to parliament reveals that the government intends to focus on ‘full monetisation of the economy through agriculture, industrialisation, expanding and broadening services, digital transformation and market access.’
Henry Musasizi, the state minister for finance (General Duties), also lists investments in wealth creation initiatives, investments in social sectors like education, health and water, as well as manufacturing, as the other priority areas.
“The key priority areas include peace and security, road maintenance and construction of a few strategic roads and construction of the standard gauge railway, electricity transmission and utilisation of existing energy stock,” he said during the plenary sitting of the House on March.28.
The national budget is tabled before April in accordance with Section 13 of the Public Finance Management Act, 2015, which states that, “The Minister shall, on behalf of the President, present the proposed annual budget of a financial year to Parliament, by the 1st of April of the preceding financial year.”
The upward adjustment in the budget proposal means that there will be a need to recalibrate budget priorities to accommodate the newly proposed figures, ensuring that strategic areas of development receive the necessary funding.
This is because in the initial budget proposal as captured by the Budget Framework Paper for the FY 2024/25, the government had proposed a budget of Shs 52.7 trillion, Shs 1 trillion higher than the budget for the current financial year ending on June.30.
Out of the initial Shs 52.7 trillion, Uganda Revenue Authority was to collect Shs 29.9trillion, complemented with budget support amounting to Shs28.9 billion and domestic borrowing amounting to Shs4.12 trillion. External project support was estimated to be Shs 8trillion, domestic refinancing (roll-over) Shs 9.45trillion, and local revenue for Local Governments (AIA) of Shs 287.10 billion.
Interestingly, the stock of public debt increased from Shs78.8trillion in June 2022 to Shs86.7trillion in June 2023.
However, as a share of Gross Domestic Product, public debt reduced from 48.4% to 46.9% over the same period, partly supported by; the continued economic growth recovery from the COVID-19 shock which had not only affected economic activity, but also necessitated higher government borrowing; coupled with government’s deliberate efforts towards fiscal consolidation.
The government hopes that as a share of GDP, public debt is projected to increase slightly over FY 2023/24, but remaining below 50%, and thereafter begin to decline over the rest of the medium term following continued economic recovery; higher revenue receipts through the implementation of the Domestic Revenue Mobilization Strategy (DRMS), as well as the onset of oil revenues which together could reduce the reliance on debt.
Proposed budget allocations
According to the Budget Framework Paper, the government’s proposed allocations for Development Plans Implementation programs, which encompass debt repayment, have been set at Shs18.863 trillion. Investment in Human Capital Development has been earmarked at Shs 9.589 trillion, reflecting the government’s commitment to enhancing the nation’s health, education, and workforce skills as the Integrated Transport Infrastructure and Services sector has been allocated Shs 4.491 trillion.
Governance and Security has been allocated Shs 7.675 trillion, Private Sector Development Shs 1.911 trillion and agriculture transformation Shs 1.813 trillion.
Sustainable Energy Development is set to receive UGX 1.342 trillion, with key focus on enhancing the country’s energy infrastructure and access. Regional Development has been allocated Shs 1.047 trillion to support equitable growth across all regions as the budget for Legislation, Oversight, and Representation (Parliamentary Commission) has been allocated Shs 945.76 billion.
Sustainable Urbanisation and Housing has been allocated Shs 524.46 billion; Petroleum Development Shs 447.03 billion and Administration of Justice Shs 432.44 billion. Natural Resources, Climate Change, Land, and Water Management is set to receive Shs 426.65 billion as Innovation, Technology Development, and Transfer, and Tourism Development have been allocated Shs 256.66 billion and Shs 248.7 billion.
Public Sector Transformation has been earmarked Shs228.53 billion to enhance governmental efficiency and service delivery. Manufacturing has been earmarked Shs 218.81 billion to support industrial growth and value addition as Digital Transformation has been allocated 191.83 billion.
Mineral Development is set to receive Shs 47.33 billion, with key focus on the exploration and sustainable exploitation of mineral resources. Interestingly, community mobilisation and mindset change has been allocated Shs 35.08 billion.
Proposed tax increases
The Ministry of Finance, Planning and Economic Development has since outlined several strategies aimed at enhancing tax revenues in the upcoming financial year, pending parliamentary approval.
Among these strategies are amendments proposed through five key tax legislation bills: the Excise Duty Amendment Bill, 2024; the Stamp Duty Amendment Bill, 2024; the Income Tax Amendment Bill, 2024; the Value Added Tax Amendment Bill, 2024; and the Tax Procedures Code Amendment Bill, 2024.
These amendments are currently under review by the House Committee on Finance, led by Chairperson Amos Kankunda.
One notable proposal includes the introduction of an Excise Duty Tax of Shs 500 on each 50 Kg bag of cement, as well as on adhesives, grout, white cement, or lime. However, this move is expected to have an impact on cement prices, which have already seen a significant increase from Shs 32,000 to a range of Shs 36,000 to Shs 45,000 over the past four months, depending on the brand and location.
The price surge has largely been attributed to challenges in the supply chain, particularly disruptions in the availability of clinker, which constitutes nearly 80% of cement’s production cost.
Furthermore, the government is proposing to impose a 10% tax or Shs 75, whichever is higher on mineral water, bottled water, and other types of drinking water.
Additionally, under the proposed Excise Duty Amendment Bill 2024, the government plans to adjust the duty on fuel products. Specifically, the government is proposing to increase duty on Motor Spirit (petrol) by Shs 100 to Shs 1,550 per litre. Similarly, the duty on diesel and other fuels is set to rise to Shs 1,230 per litre, while kerosene will see an increase to Shs 500 per litre. This move is likely to further increase the prices of fuel that is currently trading at Shs 5,200 at smaller distributors and average of Shs 5,400 at majors like Shell/Vivo and TotalEnergies outlets.
On income tax, the government is proposing a 5% withholding tax on gains earned from the sale of land in cities and municipalities, sale of rental property and sale of shares in a private company, with a deadline of 15 days after disposal of the assets or a penalty would apply for the delay.
However, the government is proposing Value Added Tax (VAT) exemption on cooking stoves that use ethanol, as well as on agricultural inputs and equipment including hoes, pesticides, fertilizers, seeds and seedlings. Similar measures have been extended to electric cars and charging equipment manufactured locally as part of efforts to make the EVs more competitive on the market.
Tax experts and various sector players have raised concerns on some of the tax proposals arguing that they will most likely worsen the financial pressures on a section of the population.
Expert views
Paul Lakuma, a senior research fellow at the Makerere University based Economic Policy Research Centre supports the government’s move to increase the budget but with precaution.
“I think it is good to increase the budget now provided that it is capturing most of the envisaged priorities,” he told The Independent on April 6.
In the past, he said, the government has appropriated a relatively smaller budget only to turn around, mid-year, to issue supplementary requests that violate the Public Finance Management Act (2016 as amended severally).
Supplementary budgets, he says also distort planning and provide bad incentive undermining discipline in public finance.
Commenting on the proposed taxes, he said, there will be a thorough discussion by constitutional organs, such as parliament, on the appropriateness of the proposed resource mobilization tools.
“The discussions will be based on well-known principles of equity, efficiency and administrative ease,” Lakuma said, “I don’t see why people are panicking. I am confident that constitution institutions shall protect us from any tax proposal that is deemed arbitrary. Equally, what is deemed fair should be paid to enable government deliver services.”
Top officials at the ministry of finance says in the Budget Framework Paper that the budget for FY 2024/2025 is aligned with the theme “Full Monetization of Uganda’s Economy Through Commercial Agriculture, Industrialization, Expanding and Broadening Services, Digital Transformation and Market Access.”
The theme, it says, is in line with the Third National Development Plan, aiming at consolidating and accelerating inclusive socio-economic transformation.
The government is pegging on the proposed budget to accelerate economic growth to at least 7%, transitioning from a raw-materials-based economy to one centered on manufacturing, knowledge and improving the business environment in the country.
The FY 2024/25 budget is the last for delivering on the Third National Development Plan whose intention is to build an integrated, self-sustaining, and independent economy over the medium to long term.
