Parliament passes tax on fuel, internet

What you need to know:

According to government, the new taxes will help boost the struggling economy. However, some legislators argued that the taxes will only increase the burden on Ugandans, many of whom are still struggling to deal with the effects of the Covid-19 induced lockdown that saw many lose their jobs.

Internet users, beer consumers and motorists should brace for tougher times after Parliament yesterday endorsed a raft of government’s proposed taxes in desperate attempts to raise revenue to resuscitate the economy that is suffering from the effects of Covid-19 pandemic.

Under the Excise Duty Amendment Bill, 2021, that was endorsed by Parliament, Internet users will have to dig deep into their pockets to pay a 12 per cent levy on Internet bundles, even after the tax proposal was rejected by human rights’ defenders and the Opposition.

The critics of the tax argued that it would curtail freedom of information on the Internet. The law replaces the widely-criticised Over-The –Top (OTT) tax for social media access.

Motorists will pay a Shs100 tax increase per litre of petrol and diesel. Parliament, however, rejected a Shs100 tax proposal on wheat.

Government argues that the fuel tax would compensate for the earlier proposed annual road licence fee; Shs200, 000 per motor vehicle and Shs50, 000 per motorcycle, that has since been dropped.

The fuel tax is expected to fetch an additional Shs196 billion.

All the new taxes take effect on July 1.

The fuel increment will raise the tax on petrol to Shs1, 450 per litre and Shs1, 130 per litre of diesel.

A litre of fuel is expected to rise to Shs4,160.

During a heated debate yesterday, the tax was endorsed after resistance from a section of legislators, who argued that it will push the fuel prices up, the cost of production and a general increase in the cost of living.

“This is going to add to the burden on the economy amid efforts to recover from the Covid-19 impact. The fuel dealers are going to add this to the consumers… the food price is going to soar. This is not the right time, you would bring it at a time when the economy is vibrant,” Mr Theodore Ssekikubo, the Lwemiyaga County MP, said.

He added: “This is the opposite of the stimulus package. You are giving with one hand and taking away with another.”

Minister for Planning David Bahati, however, defended that the tax on fuel, saying it will not translate into a significant increase on pump prices.

Fuel prices in Kampala and other towns in the past two weeks increased, with the price of a litre of petrol jumping from Shs4,050 in some areas to Shs4,150, while diesel rose from Shs3,630 to Shs3,710.

“We have been putting a minimum of Shs100 on fuel for the last five years and when we compare the pump price of fuel with Kenya, Tanzania, we are still at per. We have priorities to finance and we are being cautioned against going very far in our debt portfolio,” Mr Bahati said.

He added: “We can only finance these activities, either raise revenue domestically or if we borrow. What we do, the little we add progressively. Every time we have put something on fuel, it does not translate significantly on other prices on the consumer index.”

Explaining why government resolved to repeal OTT, he said it yielded less than expected revenue.

“From research, on a monthly basis, we use Shs8,000, so imposing 12 per cent, we are actually charging Shs738, which is cheaper than when somebody is using OTT. We have explained that we have found some challenges, especially with the VPN,”

Minister Bahati in justifying the tax that had been vehemently opposed by a section of legislators, said it is expected to earn government Shs600 billion.

Mr Muhammad Nsereko, the Kampala Central MP, questioned how government will be able to differentiate the data for medical and educational services that is exempted from the tax.

Mr Nsereko also argued that the tax will have a negative impact on tech-based businesses and hence affect the economy.

Government presented a revised budget for the 2021/2022 Financial Year, with the overall figure rising from an earlier proposed Shs41 trillion to Shs44 trillion

The government is looking to collect at least Shs430 billion from a raft of tax bills tabled on April 1 including the Traffic and  Road  Safety Act (Amendment) Bill 2021, Fish (Amendment) Bill 2021, Stamp Duty (Amendment) Bill 2021, External Trade (Amendment) Bill 2021 and Mining  (Amendment) Bill 2021.

In other amendments, the Parliament has dropped the Shs100 tax on a kilo of wheat, maize bran and other by-products of the milling industry from which government expected to raise Shs70 billion.

The motion to delete the clause was moved by the chairperson of the Finance Committee, Mr Henry Musaasizi, who argued that there is barely any wheat produced in the country and therefore, nothing to protect.

Government had argued that the tax would propel its policies on import substitution and value addition, by promoting other sources of flour like cassava and maize.

Meanwhile, Parliament also passed a 30 per cent or Shs230 tax on each litre of beer, which is likely to result in an increase on the factory price of alcoholic beverage in the wake of year-long closure of bars due to the pandemic.

The same levy is being proposed on other alcoholic drinks that are locally produced.

There will be a 12 per cent or Shs250 tax on each litre of locally-produced non-alcoholic drinks.

This excise duty has not spared other fermented beverages that include cider, perry, mead, pears or near beer.  A litre of these beverages under the new proposal will attract a 60 per cent or Shs950 tax.

The House did not pass the 10 per cent increase on the Rental Income Tax after MPs failed to reach an agreement between the majority and minority proposals.

Speaker Rebecca Kadaga said: “You have been at the floor of the House complaining about borrowing and yet you are asking for services, roads. Where do you want government to get the money from?”

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