Why Ugandans have to brace for tougher times

Ugandans may have to brace for tougher times since Parliament’s attempts to lower taxes imposed on fuel hit a brick wall after business on the tax Bills was concluded this past week.

Proposals fronted by the Opposition wing and supported by a section of NRM lawmakers—including Speaker Anita Among—met the dead bat of the government front bench on account of suffocating the country’s revenue streams.

President Museveni is expected to address the country tomorrow about the soaring cost of living that prompted the Opposition’s proposals in the House. Shadow Finance minister Muwanga Kivumbi’s minority report had suggested—under the Excise Duty Amendment Bill 2022—that tax on diesel be reduced from Shs1,130 to Shs530. Mr Kivumbi also proposed that the tax on petrol be lowered to Shs700 from Shs1,450.

Backed by Mr Muhammad Nsereko (Kampala Central), the lawmakers expressed their dismay at the government inaction even after the fuel price soared by 70 percent between January last year and February this year.

This, they added, had strong spillover effects on other vitals such as factors of production.

Because of this, the processing of raw materials has soared and the increments translate into high commodity prices.

On the eve of President Museveni’s national address, a litre of petrol and diesel retailed at Shs5,500 and Shs5,540 respectively in outlets of major fuel suppliers.

On Wednesday, Mr Kivumbi said “reduction of taxes on fuel” as one of the “stopgap measure[s] is the only remedy available to reduce the cost of living”.

A small chink was drilled in the proposal when Ms Faith Nakut (Napak Woman) demanded an assurance that any reduction in taxes on fuel translates into lower prices at the pump. A larger chink arrived when Mr Dickson Kateshumbwa (Sheema Municipality) said the tax reduction would leave the government coffers short of Shs1.5 trillion. Mr Kateshumbwa is the immediate past commissioner for domestic taxes at Uganda Revenue Authority.

Bujagali compromise

While Mr Kivumbi’s proposal was shot down, the Bujagali Hydro Power Project was granted a one-year tax exemption. This was much to the chagrin of some lawmakers.

Mr Allan Mayanja Ssebunya (Nakaseke Central) decried the move, saying it defeats logic for a country struggling to raise revenue.

“In this crisis, the government is not even ashamed to [refuse to] reduce taxes on critical items like fuel because a vast number of Ugandans are in crisis and yet they are still recovering from Covid,” Mr Mayanja said.

He added: “It is sad that the few that deal in food items that they produce like green [vegetables] fetch very little and yet commodity prices are high. You would expect the government to seriously consider this.”

In the lead up to the issuance of the one-year tax exemption, the vast bulk of lawmakers had thrown out the government proposal.

They reasoned that the previous tax concessions given to Bujagali neither translated into cheaper power nor accessibility in most rural areas.

The Cabinet, however, put up a spirited fight in defence of the Bujagali tax concession, compelling Speaker Among to institute a mini committee led by Mr Nathan Nandala Mafabi (Budadiri West). Eventually, the two opposing parties reached a compromise. The five-year tax concession request of the Executive was whittled down to one year.

Other key takeaways

Elsewhere, Mr Nsereko’s impassioned attempt to have computers of five years and below shorn of an 18 percent tax relief was rejected.

Mr Nsereko reasoned—unsuccessfully—that besides “the [East African] region [having] embraced this” the tax relief was out of kilter “with the fast growth in infrastructure development of technology” and “digital transformation in our country that will in turn broaden our tax base.”

Similarly, landlords who earn at least Shs2.5m will have to remit a 2.5 percent tax. For now, it is unclear whether landlords would pass this tax burden onto tenants in higher rent charges. Experts seem to suggest that this will indeed be the case.

Mr Nsereko was strongly dismayed when Parliament slashed taxes on beer but declined to consider the same on bread.

In this, he had suggested that 18 percent VAT waiver be effected on bread, something a concerned citizen—Mr Erastus Ngirabakunzi from Ntinda, Kampala—advocated for during an interface with the Finance Committee on May 4.

The proposal was met with a dead bat. The cost of bread has in the recent past shot through the roof in part because the biggest exporters of wheat in the world—Russia and Ukraine—are locked in a war.

President Museveni has advised Ugandans to swap bread with cassava in a bid to meet their dietary needs.

Meanwhile, Parliament under the Excise Duty Amendment Bill 2022, slashed taxes levied on every litre of opaque beer from 20 percent to 15 percent. Levies on imported spirits also dropped from 100 to 80 percent on each litre purchased. There was also an increase in levies on locally made spirits, something lawmakers said defeated logic.

Flashes of joy for some?

The good news was not just reserved for people dealing in imported liquor. Users of sanitary towels, oxygen cylinders plus those operating hotels and lodges are set to receive some respite from the taxman.

Specifically, hotels and lodges got a tax relief of 18 percent under the Value Added Tax Bill 2022. The lawmakers reasoned that this will enable hotel owners to recover from the economic shocks occasioned by global pandemic.

There was relief when Parliament sustained a position that had been given by the Finance Committee to reject a provision under the Income Tax Amendment Bill 2020 that sought to tax land. The government had sought to define land as a business asset and, therefore, demanded that it pays tax.