Monday June 16 2014

Is gov’t imposing new taxes to simply attain a wider tax base?

By Ian Mutibwa

As is the norm every year in June, the whole country awaits the Budget reading and stands in anticipation on themes, development goals, past glories and new taxes. I am biased to note that majority of the country waits for the latter i.e new taxes in the budget.

The 2014/15 Budget is no different and has indeed introduced new taxation measures in a drive to ensure that more than 80 per cent of the budget is domestically funded. Part of the new taxes introduced are the Excise Duty on mobile money withdrawals and bank charges.

The minister has gone ahead to propose a removal of some income tax exemptions, VAT exemptions and a tax on incomes of private commercial education centres and the introduction of capital gains tax on sale of commercial properties. Many have been irked by the increase of petrol and diesel as well as a re-introduction of Shs200 on kerosene.

Be that as it may, it should be remembered that these new taxes are all aimed at increasing the tax base so as to finance the Shs15 trillion budget for the next financial year. We need to note that the next financial year is critical to the achievement of the millennium development goals (MDGs) by 2015 a quest Uganda has been on for the past years.

A critical analysis of the budget, however, presents many contradictions in objectives and the vehicles to achieve these objectives which include tax.

I will carefully consider the objectives as expressed in the budget speech and juxtapose the same with the taxes imposed and let you decide.
Leveraging government assistance to agriculture, agribusiness, agro-processing…

The government plans to support agriculture and agribusiness but they have proposed a removal of Income Tax exemptions on interest on agriculture loans and Value Added Tax exemptions on the supply of feeds for poultry and livestock, supply of agriculture and diary machinery and the supply of packaging materials to the diary and milling industries.

This in my opinion waters down their objective of supporting agriculture as the removal of the exemptions shall increase the cost of agriculture and agribusiness generally.
The strategy also ensures that government facilitates the private sector by implementing measures that improve efficiency and lower the cost of doing business
Perhaps the highest costs in production are taxes, both direct and indirect.

Lowering costs of doing business means lowering taxes on inputs and other factors of production. The proposals in the budget tend to hike this cost of production.

There is a proposal of increase of Shs50 on petrol and diesel which are major factors of production especially in Uganda given the fact that most of the transportation is by road.

In addition, the Minister proposed a removal of VAT exemption on the supply of new computers, desktop printers, computer parts and accessories and computer software licenses.

With development and economic growth comes the computer age and the fact that new computers are not VAT exempt also reduces the aspect of technological development in the ICT sector. The rise in transport costs and also VAT on new computers does not in my view enhance and promote businesses in Uganda.

Government long-term objective is to boost domestic savings to provide long-term development finance.

We must note that the majority of Ugandans do not save money in banks and they have developed the habit of using mobile money which in a way helps them save.

Last year, the Minister introduced tax on transactions such as mobile money and money transfers and this year she further introduced the tax on mobile money withdrawal and bank charges.

This definitely increases the already high fees on using banks and mobile money and will in turn chase people away from the saving culture they had developed.

Promotion of quality education. The Minister has proposed a removal of Income tax exemption on private commercial educational services.

This means that the cost of sending a child to the “good” or the “better” private school is going to tremendously increase and, therefore, affect the common man.

Whereas some people may argue that the tax on private commercial education services is good as these private persons were making ridiculous amounts of money, it shall affect the education sector as many persons may not ably afford the tuition fees.

The million dollar question, therefore, is, are we on the right track or are we creating new taxes for the sake of creating a wider tax base and achieving the higher budget projector? Do we need to re-evaluate our objectives and align them with the tax regime?
I leave that for you to decide.

Mr Mutibwa is a tax and legal consultant