Finance Minister Matia Kasaija (left) and other government officials appears before Parliament’s Trade and Finance committee to defend the tax proposals on April 19, 2024. PHOTO | FILE
As the clock struck midnight, the enforcement of a raft of new taxes that the government is banking on to raise additional Shs1.2 trillion, also became effective.
Taxpayers are expected to comply as the Uganda Revenue Authority (URA) today begins to collect revenue of nearly Shs32 trillion needed to meet the targets for the 2024/2025 financial year (FY).
Although tax collection has been increasing over the years, the tax collector has been struggling to hit projected targets. The Ministry of Finance, as of last month, said URA was facing a projected revenue shortfall of about Shs1.9 trillion after struggling to beat the domestic revenue collection target of Shs27.725 trillion, against the target of Shs29.672 trillion.
New measures
Researchers, economic sector players and analysts say to understand the implication of the tax measures, whose enforcement kicks off today, it is logical to scan the economy.
“At the onset, Uganda’s tax regime is unpredictable because it is reviewed annually, yet investment is planned for 3 to 5 years. This creates an unsupportive tax regime that affects proper planning by the already struggling private sector,” said Mr Africa Kiiza, a PhD Fellow in the Faculty of Business, Economics and Social Sciences at Universität Hamburg in Germany.
“Moreover, the consumers, 30 percent of whom are poor, and the majority of the working poor population will be the ones to deal with the final burden of a system where the consumptive tax has created double-taxation,” he added.
Mr Kiiza, who is also a researcher on trade and tax matters, said on Saturday in an interview that some of the taxes have been prematurely imposed on sectors that are yet to break even.
He cited the imposition of excise duty on powdered beer at Shs1,000 per kilogramme, yet the brand has not yet been experimented on in the market.
Mr Kiiza also said another ill-thought tax is the Shs500 per 50kg tax on adhesives, grout, white cement or lime.
He said for a country that has a housing deficit of 2.5 million facilities, the tax will increase the price of construction inputs and deter private sector investment in affordable housing.
As the financial year kicks off, it also does so with some progressive taxes like exemptions on electric batteries and electric vehicle charging equipment. Another welcome tax is the increase of excise duty on imported wines from 80 percent or Shs8,000 per litre to 100 percent.
This tax, if leveraged, can turn around the fortunes of the domestic wine industry as well as tackle financial haemorrhage.
Mr Kiiza also said the tax measure that hasn’t been appreciated is the Shs100 levy on fuel.
“The decision to increase excise duty on petrol and diesel by Shs100 per litre is likely to hurt the prices in the market. This cost potentially increases the cost of transportation, and production and prices for some products/services attributed to hike in fuel prices,” he added.
Mr John Walugembe, the executive director of the Federation of Small and Medium-sized Enterprises - Uganda, said this financial year will be tough for businesses that are expected to contribute the bulk of Shs32 trillion the government intends to collect domestically.
He said most of the taxes will be raised through Value Added Tax.
However, Mr Patrick Ocailap, the deputy secretary to the Treasury, said the tax measures are well-thought out and their enforcement is expected to go smoothly.
Mr Moses Kaggwa, the director of Economic Affairs at the Finance ministry, said the Shs1.2 trillion target is not out of reach on account of the anticipated growth of the economy estimated at Shs202 trillion, up from Shs184.3 trillion.
