Govt defends tough new taxes

The government has defended a fresh set of proposed taxes that if passed in their current form would raise the cost of living. 

The new taxes are captured in five sets of tax Bills that include the Excise Duty Amendment Bill, 2024; Stamp Duty Amendment Bill, 2024; Income Tax Amendment Bill, 2024; Value Added Tax Amendment Bill, 2024, and Tax Procedures Code Amendment Bill, 2024. 

The proposed taxes were tabled last Thursday by the State Minister of Finance in-charge of General Duties, Mr Henry Musasizi. The proposals were later referred for processing to the House Committee on Finance, chaired by Mr Amos Kankunda. 

Under Excise Duty, the government proposes to impose Shs500 on each 50kg bag of cement, adhesives, grout, white cement or lime. The same Bill fronted by the Ministry of Finance also shows that gasoline users will pay Shs1,550 tax on every litre, gas oil will have a Shs1,230 tax on each litre, while paraffin users will have to incur Shs1,550 per litre bought. 

However, the proposals have triggered concern among economic policy experts, including MPs, with the majority opposing the proposals, but government reasons otherwise. 

The State Minister of Finance in-charge of Planning, Mr Amos Lugoloobi, has since defended the tax proposals, reasoning that the move is meant to lessen government’s reliance on borrowed funds, which in turn attract heavier interests. 

“Let me state that we are a country whose resource envelope depends on revenue and borrowed funds. We borrow because the revenue we use is not enough. But how long can you go on borrowing?” Mr Lugoloobi wondered. 

He insists that the resources have to be siphoned from the majority Ugandans through taxes imposed on items frequently used such as fuel and construction materials such as cement. 

“So it is the natives of a country that build their own country. They are not going to expect us to go to America [and borrow] and come here and finance the development of this country. It has to come from us,” he said.

The tax Bills are meant to boost the revenue sources from which the Uganda Revenue Authority (URA) will tap into to feed into the national resource envelope to bankroll activities of the Financial Year 2024/2025. 

Last Thursday, the Ministry of Finance tabled a Shs58.3 trillion Budget for the FY2024/2025, reflecting a Shs5.64 trillion increase above the Shs52.7 trillion of the ongoing FY2023/2024. 

Experts and legislators have, however, questioned the rationale behind some of the proposals that seem to place a heavier burden on the majority of ‘low class’ Ugandans. For instance, the Chekwii County MP, Mr Moses Aleper, said: “The type of people who consume paraffin are the down-trodden Ugandans who will be hit the hardest. So I don’t know how that is feasible.” 

In a similar opinion, the executive directive of Civil Society Budget Advocacy Group, Mr Julius Mukunda, said the proposals were unfair. 

“The tax on fuel has come up at a time when prices of fuel have been increasing. So the burden and cost of living of an ordinary person is going to increase through increased cost of production,” Mr Mukunda said. 

“These taxes are missing out on the rich [people]…we would have gone ahead to remove exemptions on Saccos but the ministry did not want to go there because there are rich guys who don’t want to pay the taxes,” he added. 

The policy and governance analyst at Uganda Debt Network, Ms Christine Byiringiro, reasoned that “the new measures cannot help ordinary Ugandans because the cost of living is already too high.” 

Last week, the House Committee on Finance rejected a Shs13b  tax waiver that was meant to benefit seven entities after Ministry of Finance officials led by Mr Musasizi failed to table solid evidence to back their request. 

In defence of the government’s position, Mr Lugoloobi said: “When you raise the taxes on petrol and diesel, it means you have to raise tax on kerosene because people have been using kerosene to adulterate diesel. So the more you let kerosene be far cheaper than the others, the more problems you create in adulterating fuel.” 

The chief executive officer of Global Taxation Services, Mr Albert Beine, said the government should desist from ‘easy fixes’ such as imposing taxes on frequently consumed items like fuel. 

“The Budget process should stop looking at only where to get money from and also reduce expenditure. However much the government puts pressure on taxpayers, if there is no money in the economy, what will you squeeze from them?” he wondered. 

He added: “The government should be concentrating on panel-beating the administrative procedures to make sure the taxes we already have can be effectively collected. The available taxes are already enough, we don’t need to increase the rates or even introduce new taxes.” 

Some of the proposed new taxes

Motor spirit (gasoline).    Shs1,550 per litre.
Gas oil (automotive, light, amber for high speed engine).    Shs1,230 per litre.
Kerosene.    Shs500 per litre.
Land in cities and municipalities.    5% Withholding Tax on gains earned from the sale of land in cities and municipalities, sale of rental property and sale of shares of a private company.
Cement, adhesives, grout, white cement or lime.    Shs500 per 50kgs.
Mineral water, bottled water and other water purposely for drinking.    10% or Shs75 per litre, whichever is higher.
Opaque beer.     12% or Shs150 per litre, whichever is higher.
Any other alcoholic beverage locally produced.     12% or Shs150 per litre, whichever is higher.
Powder for reconstitution into beer     Shs2,500 per kg.
Undenatured spirits of alcoholic strength by volume of 80% or more made from locally produced raw materials.    60% or Shs5000 per litre, whichever is higher.
Undenatured spirits of alcoholic strength by volume of 80% or more made from imported raw materials.    100% or Shs5,000 per litre, whichever is higher.