Uganda’s anti-growth tax plan

The new tax move will stifle economic recovery, kill innovation

Kampala, Uganda | JULIUS BUSINGE | Uganda’s government is left with just a month to announce the new budget for the Financial Year 2018/19. But it appears there is bad news as government plans to increase taxes on products and services consumed mainly by the less privileged – a situation that tax experts warn could stifle the economy that had begun showing signs of recovery.

“The proposed increase in taxes will in effect increase the cost of living which will negatively impact economic growth because people’s income sources are not growing at the rate expenses are growing,” Philip Niwamanya, a tax expert with KPMG’s Tax and Corporate Services Department told The Independent in an interview.

Niwamanya said the proposed tax increment on products and services that the majority of the population consumes on a daily basis implies that the cost of doing business is going up, eroding Uganda’s competitive position in comparison with other countries.

The government has proposed a cocktail of taxes for the new financial year starting July aimed at widening the tax base and increasing revenue collections. It has also proposed incentives aimed at promoting big investment in industries. These are subject to legislation by Parliament.

The new revenue measures are expected to contribute to the Shs30.9 trillion budget of FY2018/2019 of which domestic revenue – to be collected by Uganda Revenue Authority – is projected to be Shs16.4trillion (over 53% of the total resource envelope).

In the proposed Excise Duty Amendment Bill 2018, the government plans to tax opaque beer 30% or Shs230 per litre, undenatured spirits made from locally produced materials 60% or Shs2, 000 per litre, undenatured spirits made from imported raw materials 100% or Shs 2,500 per litre and wine made from locally produced materials 20% or Shs2,000 per litre.

The government is also proposing [under excise duty] to tax powder for reconstitution to make juice or dilute-to-taste drinks (excluding pulp) at 15% of the value; airtime on mobile cellular, landlines and public payphones at 12% of the fee charges; over the top services (internet) is proposed to be at Shs200 per user per day of access.

The bill is also proposing charges on money transfers or withdrawal services, including transfers and withdrawal services by operators licensed or permitted to provide communications or money transfers or withdrawals but not including transfers and withdrawal services provided by banks – proposed to be at 15% of the fees charged.

In addition, government is also proposing a 1% tax on mobile money transactions on receiving, payments and withdrawals of the value of the transaction; US$0.09 per minute on incoming international calls, except calls from the Republic of Kenya, the Republic of Rwanda and the Republic of South Sudan, Shs 200 per litre of cooking oil and Shs200, 000 for the first motorcycles registration.

Under income tax, government is proposing to reinstate income tax for Savings and Credit Cooperative Societies (SACCOs).

Other proposals

The other proposals are; tax on direct or indirect sale of an asset connected to Uganda by a non-resident; align tax treatment of returnable containers used by manufacturers; increase excise duty on fuel by Shs 100 per litre; oblige government agencies to withhold VAT on their purchases; impose export levy of Shs 1, 500 per kilogram of wheat, maize, rice and cotton.