By Peninah Mbabazi


Published: 15th June 2016

The theme of Uganda’s FY2016/17 budget that was read by Uganda’s Finance Minister Matia Kasaija on June 8th 2016 is ‘Enhanced Productivity for Job Creation’. Going by absolute figures, three priority sectors for the total budget of UGX 26.36 Trillion (approximately USD 7.86 billion) are infrastructure development (8.7%), Energy and Mineral Development (11.7%) and Education 12%. Government will spend UGX 3.78 Trillion on Works and Transport, UGX 2.423 Trillion on Energy and Mineral Development and UGX 2.2 Trillion on Education respectively. The Budget will be largely financed through tax measures. The Government’s revenue from both taxes and non-tax revenue has been projected to be UGX 11.1 Trillion.

In accordance with East African Community (EAC) protocol, ministers of other EAC Member countries who read theirs on the same date, also read highlight great emphasis on infrastructure development Kenya’s Finance Minister Henry Rotich, presented a Kshs. 2.3trn ($22.8bn) Budget focusing on infrastructure with infrastructural projects aimed at roads and railways as well as agriculture including agro processing to spur the country’s growth. Tanzania’s Finance Minister, Philip Mpango, presented a Tzs 29.54 Trillion ($13.51 Billion) budget which will be focusing on upgrading the central railway to standard gauge and port improvement. Rwanda’s Finance Minister, Claver Gatete, presented a 1.95Trn Francs ($2.6bn) Budget focusing on maintaining growth of 7%. 62% of Rwanda’s budget will be funded locally with the external sources funding at 38% which decreases donor funding by increasing domestic resources.

The FY2016/17National Budget Agricultural sec-tor allocation has increased from UGX 480bn last year to UGX 824bn this Financial Year. This in-crease goes to show that the Government of Uganda has started paying attention to a sector that was lagging behind. It is important to note that the Agricultural sector employs a large number of Ugandans and has the potential to employ more thus catering for the unemployed youth once funded adequately.

In Uganda’s specific projects under the proposed budget include Karuma and Isimba Hydro Power projects, the Standard Guage Railway, Kampala-Jinja Expressway and Entebbe Airport rehabilitation. This is at the backdrop of the recently released a UNRA Commission of Inquiry report that highlighted a loss of UGX 4 Trillion (worth 3647km of new roads) out of the UGX 9 Trillion that was allocated to UNRA since 2008. With Public Debt estimated to be UGX 29.984shs which is 30.5% of GDP is below 50% of the EAC convergence criteria but still Government hopes to fund the budget at 44.5% most of it from taxes with the remaining 55.5% to be attained from external and domestic borrowing. Most of the revenue to fund this budget will be got from increasing taxes on luxuries and essential products such as Cigarettes, ready-to-drink spirits, Petrol (gasoline), cane or beet form, Motor vehicle lubricants and confectionaries. As much as this is in a bid for Government to raise more revenue, there is still need to identify other vital revenue collection areas. This will enable a shift from the few compliant tax payers willing to struggle with the tax burden alone.

In view with the continuous trend of endemic delays in implementation of highly funded projects, cost overruns and corruption as major constraints to having proper transformation of the country socially and economically. At a time when Government is focusing on loans and borrowing, not much consideration is put into the cost of repayment being higher and continued concessional loans from China that are still not sustainable in the long run. Uganda already grapples with non-performing loans, borrowed funds which are idle and low absorption capacity of borrowed resources. It is obvious that we as a nation are yet to learn from our past mistakes. If the theme ‘Enhanced Productivity for Job Creation’ is to be a reality, the proposed budget should be a basis for all citizens to be vigilant and actively involved in monitoring finances allocated to different sectors for prudent accountability of their money.

By Imelda Namagga

Published: 22nd June 2016

While Ugandans kept tabs on the 2016/17 Budget presentation recently, many had high hopes anticipating proposals that will give some relief to the “common man” who is already burdened with the high cost of living. Much as some of them emerged winners, another lot of taxpayers were weighed down by a combination of increased taxes on some items. Imelda Namagga assesses whether the Budget will deliver citizens’ expectations.
Uganda presented its Shs26.361 trillion national Budget for the financial year 2016/17 on June 8, 2016. The Budget, which is a 9.7per cent increase from that of FY 2015/16, was presented under the theme; “Enhanced productivity for job creation.” In FY 2015/16, the economy grew by 4.6 per cent, with services growing at 6.6 per cent from 4.5 per cent last financial year, agriculture at 3.2 per cent in real terms compared to a growth rate of 2.3 per cent in FY 2015/16. Furthermore, the country’s foreign exchange reserves slightly grew slightly from 4.3 months of future imports of goods in March 2015 to currently stand at 4.4 months, slightly below the medium term target of 4.5 months. While this performance is quite commendable, there are fears that this may not directly trickle down to the common man.

Public debt

Gross nominal public debt is estimated to be Shs29.984 trillion by end of June 2016, of which Shs18.665.7 trillion is external debt and domestic debt Shs11.319 trillion. This is equivalent to 34.1 per cent of GDP, an increase from 25.9 per cent in FY 2013/14. Though this amount is below the Public Debt Management Framework (PDMF) threshold of 50 per cent, this figure has increased from 25.9 per cent in 2013/14 to 34.1 per cent in 2015/16. Though most indicators (for both domestic and external debt) are below the required threshold proposed in the PDMF, the ratio of domestic debt stock to private sector credit (as at June 2015) was estimated at 95.1 per cent, way above the required threshold of 75 per cent. This implies a crowding out of private sector credit with diverse effects for private investment.


Impact of tax measures on common man

In the past financial years, the government has made it a habit to increase taxes on items such as fuel. Just like other previous Budgets read by the Finance minister, the government is in the next financial year 2016/17 proposing an increase in excise duty of Shs100 on each litre of diesel and petrol. This will contribute to increasing the cost of production. Since this tax will be borne by the final consumer, this will see an increase in pump prices and will force transport fares as well as other commodity prices up. The poor will be greatly affected since they will be required to spend a larger portion of their income to meet basic commodities.

The proposal to increase registration fees for personalised number plates from Shs5 million to Shs20 million is a welcome move, since this is since as a luxury, which is mainly consumed by the rich. Likewise, the move to increase taxes on soft cup cigarettes to Shs50,000 per 1,000 sticks and hinge lid cigarettes to Shs80,000 per 1,000 sticks as well as that to increase taxes on sweets and confectionaries to 20 per cent is commendable since the above products have diverse effects on health. This move will discourage some sections of the population from consuming more of these products.
The government’s proposal to allow producers of solar, wind and geothermal energy relief on VAT incurred on their businesses inputs is a good move since it will not only promote the use of alternative sources of energy but also make them affordable to most households. With the high electricity tariffs in Uganda, some sections of Ugandans will resort to using solar, wind as well as other available cheap alternatives.
Similarly, government’s move to grant VAT relief in respect of supplies procured from the domestic market for aid-funded projects will promote the use of Ugandan products hence encourage local investments.

In FY 2016/17, the government is proposing to grant tax relief on losses to taxpayers who merge or acquire loss-making businesses and continue to operate this same business after this transaction. The move is aimed at promoting Uganda’s investment climate and facilitating mergers and acquisitions. While this is seen as a good move, measures should be put in place to ensure that this incentive is not abused by other tax payers who may deliberately declare losses with an aim of receiving tax relief. The decision to grant this should be considered after an audit is done on such businesses.
The government is commended for its efforts to expand the tax base by implementing the Taxpayer Registration Expansion Project and its plan to increase the budget of Uganda Revenue Authority (URA) by Shs40 billion to roll out the tax payer education programmes aimed at helping businesses to formalise their operations through business licensing and registration. While we hope that this will help in educating the public, a deliberate effort should also be made by the government to promote transparency and accountability in the collection of domestic revenues.

Agriculture

For agriculture, the backbone of Uganda’s economy, the government is planning to allocate Shs823.42 billion in FY 2016/17, a 65 per cent increase from Shs343.46 billion in FY 2015/16. In spite of this increase, the overall share of this sector’s Budget remains at a mere 3.1 per cent of the total national Budget.
Furthermore, the government has pledged to transform this sector though investing in interventions such as agricultural research and development; construction of irrigation infrastructure including on-farm valley tanks, valley dams and medium to large scale irrigation schemes for communities; financing post-harvest handling facilities for commodity storage through the agricultural credit facility; and implementation of a comprehensive National Agriculture Finance Policy and Strategy to support private sector investment in agriculture and establishing an agriculture insurance scheme to reduce farm risks and attract investment in agriculture.
With 64 per cent of the population still stuck in subsistence farming, there is a fear that most of these interventions may not benefit the bulk of the farmers, unless the government makes deliberate efforts to target these categories of people.

Education

The education sector Budget is projected to increase from Shs2.029 trillion in 2015/16 to 2.745 trillion next financial year. While this represents a 35 per cent increment in the sector’s total Budget, a larger portion of the increment is to cater for the 15 per cent increase in teacher’s salaries. Given the increase in enrolment rates for both primary and secondary pupils, the resources available in this sector may not be adequate to cater for the increased development needs as well as address challenges that this sector is currently facing.
All in all, we await the actual implementation of this Budget in July 2016. We hope this Budget contributes towards the government’s expectations of transforming the country into a middle-income country.

Interest payments

In FY 2016/17, the government is planning to put aside a total of Shs6.4 trillion to cater for interest payments due. This reflects a total of 24 per cent of the total national Budget, the largest amount ever. Moreover, the ratio of interest payments as a percentage of GDP has continued to increase from 0.9 per cent in FY 2010/11 to 2.0 per cent in 2015/16 and is expected to rise further to 2.2 per cent in the next financial year.
Since the country has continued to borrow to finance large infrastructure projects, if these investments do not generate sufficient amounts of revenue in future, there is a growing fear that the country will continue spending huge amounts on debt service; thus, compromising allocations to other productive sectors of the economy.
In FY 2015/16, most of the domestic revenue sources performed below the planned target. Among the local revenue sources, only income taxes (i.e corporation tax and withholding tax) met the planed target. However, despite a Shs42.77 billion shortfall in trade taxes, the government managed to collect a Shs7.71billion surplus from excise duty. Even with this revenue shortfall, domestic revenues are projected to increase to Shs12.914.3 trillion in the next financial year. The question one would ask is whether given the current economic conditions, this higher projection will be met without undertaking some fundamental reforms, particularly to bring those in the informal sector under the tax net.

Numbers

  • Shs100 Tax increase in petrol and diesel for the FY2016/17.
  • 64%Percentage of population in Uganda that is still stuck in subsistence farming.
  • Sh12.9tURA’s revenue collection target of FY2016/17.

By Christine Byiringiro

Published: 1st June 2016
 
he Government of Uganda has placed infrastructure development at the apex of the country’s macro-economic agenda for over 3 years now to facilitate private sector development as the engine of growth and this is highlighted inter alia in the past budget speeches.
It is for this reason that the biggest chunk of the national cake has always and continues to go towards improving the national road infrastructure, a key function of the Uganda National Roads Authority (UNRA) which was created in July 2008 to develop and maintain the national roads network. This therefore calls for heavy investment in the sector and Government has had to resort to borrowing in order to achieve this.

As the country prepares to listen to the FY 2016/17 budget speech on 8th June 2016, the UGX 26.3 trillion budget already approved by Parliament has the lion’s share allocation of UGX 3.8 trillion to works and transport, up from 3.3 trillion in FY 2015/2016.
Since the money collected through taxes alone cannot fund all the country’s development needs, Government contracts national debt to fund some of them thereby attracting huge interest payments that the Ugandan taxpayer toils to pay. The Ministry of Finance projected that the stock of outstanding public debt would reach US$ 7.6 billion by end of FY 2015/2016 up from US$ 7.2 billion in FY2014/2015. The increase was attributed to the growing need to finance infrastructure investment.

Ideally, debt should be directed towards investments because these are, by their nature, income generating thus the returns are used to service the debt. The ability of such investments to generate returns is therefore critical in assessing the country’s future debt sustainability. Sadly, Uganda is headed towards the opposite direction, reason the national debt resources are diverted towards unjust enrichment by those in positions of responsibility and have previously got away with it.

This partly explains why corruption in the public service sector continues to thrive with the latest scandal unearthed at UNRA. The UNRA commission of inquiry into mismanagement of the Authority’s resources recently exposed massive corruption at UNRA where a total of UGX 4 trillion has gone to waste since 2008 to date. The Commission, set up by the President in June 2015 to inquire into alleged corruption at UNRA found that top officials in UNRA connived with consultants and contractors to swindle the Authority’s funds; no genuine competition for road projects and contractors were paid billions for no work done leading to shoddy work. According to highlights of the Commission’s report published in the New Vision newspaper on 27th May 2016, the Pakwach-Nebbi and Fort Portal-Hoima roads began disintegrating even before they were handed over to the Government!

What Next?


•    The time to put a stop to such impunity is long past but it is never too late to start. Thanks to the President for instituting the Commission but also unlike in the recent past, we now see him begin to progressively fight corruption. Like the saying goes; even the journey of a thousand miles begins with a single step. We can only confirm the president’s resolve to combat the vice as clearly stated during his swearing-in ceremony by such actions.

•    That the country now looks to the responsible action centers to implement the Commission’s recommendations would merely be stating the obvious, otherwise the tax payers would have to carry the burden of servicing the debt, pay interest but also incur costs to re-construct and maintain these roads. Such cases however also provide lessons to help us tighten the loopholes as we advance towards development.

We must therefore seize the opportunities and act appropriately as we work towards becoming a middle-income country by 2020.