2017/18 Budget: Bridging the gaps between intention and reality

One of the major facets of the 2017/18 Budget as enshrined in the National Budget Framework Policy was improving the tax administrative processes and systems in order to widen the tax base and reduce the tax burden, especially on the already existing taxpayers.
This was based on the premise that if we as a nation can bring economic activity out of the shadows, we can drive economic efficiencies by ensuring that all businesses compete on a level playing field under the same tax and regulatory burdens among many other benefits. This would also increase and worryingly low tax GDP ratios, towards an optimal 25 per cent of GDP and also reduce the fiscal deficit that is projected to rise to 5.1 per cent of GDP in FY2017/18 from 4.6 per cent in FY2016/17.
Failure to widen our revenue collections will see us resort to more debt, which at 36 per cent of GDP, is dangerously approaching the 50 per cent of GDP threshold.
Going back to the 2017/18 Budget, we applaud the recent Excise Amendment Act that reinforces the Buy Uganda Build Uganda agenda by maintaining at 60 per cent excise duty rates on all spirits made from locally produced materials, which will allow locally manufactured spirits an advantage over imported spirits, that will now pay a rate of 80 per cent. This should spur local production of undenatured/neutral spirit from sugarcanes injecting more than Shs300 billion into the local sugarcane industry while saving estimated $84 million in forex outflows.
We, however, still do not fully comprehend government’s decision to increase by 15 per cent, the excise duty on beer made from locally sourced raw materials despite time and again demonstrating to government that for this category of beer, there is a regressive relationship between tax rate increases and the actual taxes collected.
Tax collections aside, price increases forced onto us by increases in tax rates result into drastic volume reductions as consumers resort to cheaper, untaxed and unsafe illicit alcohol, which is both a loss of business for the industry, but also revenues for government. It also inadvertently affects more than 10,000 farmers from whom raw materials are sourced under local raw materials (LRM) programme. This has happened before where earlier changes caused a 60 per cent and 34.2 per cent decline in sorghum and corn starch (maize) respectively. This has an impact on employment, not only for the farmers, but also agro-processors and transporters, thus negatively impacting many household incomes within the economy that we have created.
We are just recovering from the FY2016/17 tax increase that we were able to absorb and therefore did not result increased prices for our affordable beers and now, with an increase of between 15 per cent and 20 per cent in FY2017/18, depending on the brand within the beer category, it is more probable than not that a price increase is in the offing, especially within this category.
If we or other similarly affected industries can’t increase price, the second option is restructuring our operations, rationalising our direct and indirect employees as well as reconsidering our local raw materials sourcing options - all of which will adversely affect livelihoods and families; and have negative consequences on the industry and ultimately the economy contrary to the stated Budget and government objectives being pro-industrialisation and job creation.
Instead of continuing to heap the tax burden on the 2 per cent formal players in the alcohol industry who are both among the top five taxpayers, we wish to urge government to continuously focus on recruiting more taxpayers from the informal sector, who are enjoying undue advantage over us. We invite government to look at the huge untapped potential in the illicit alcohol market- that is worth $675.7 million by value and $172 million (Shs619 billion) according to a 2015 study by Euromonitor International Consulting.
The current situation where only 0.1 per cent taxpayers account for 75 per cent of tax revenue and 75 per cent of MSMEs do not have tax identification (TIN) numbers- meaning that they don’t pay tax, is unsustainable. We also support Parliament’s call to government for closer scrutiny of the tax incentives regime to ensure that the incentives benefit entire sectors instead of individual players in the sector.
We look forward to the next Budget, which we hope will create an environment that allows innovation in the usage of home-grown raw materials through Uganda Breweries’ Local Raw Material sourcing programme that has the potential to reach an unprecedented Shs90 billion and touching 50,000 farming households in the next five years.

Ms Kiyemba is legal & corporate relations director at Uganda Breweries Limited