Now’s not the time to raise cost of business

Friday June 11 2021
By Editor

The 2021/22 budget is the second one executed under the Covid-19 pandemic and it is challenged by resource availability with Uganda Revenue Authority falling below target for the outgoing financial year 2020/21 by about Shs2 trillion. This is coupled with the government’s determination to keep growth looking modest and maintain the infrastructure development trajectory.

This begs the question, shouldn’t the budget as the key instrument ofgovernment economic policy be an enabler for the resilient businesses? Is this budget sufficiently doing that? Looking at the tax policy at this material time, maybe not as well.

Take for example the 12 per cent excise duty on data. For many, it is viewed in light of Megabytes or MBs one uses and if that will increase. But the reality of this all is that even data used by businesses as a normal cost of operation will be taxed at 12 per cent. Looking at the timing, when the push to get businesses online is accelerated by the Covid-19 pandemic and the fact thatInternet usage is a normal day-to-day factor of production for many businesses means that the cost of any business that uses data has just gone up by 12 per cent. If a company spends Shs30 million a year on data costs, this company will pay an extra Shs3.3 million and that goes up the more data one uses. Can that cost be transferred to the clients of that company during this Covid-19 affected economy; the answer is not necessarily yes.

For businesses with a vehicle fleet as a critical part, the cost of fuel just increased by the tax element of an additional Shs100 per litre. 
There are many businesses with increases of cost on both fronts with diminished demand from the slow economy. So businesses will have to absorb these costs or pass them on to clients whose purchasing powers might be already suffering.

Conversation with key Finance Ministry technocrats as to whether they gave thought to these considerations enlists a justification that government needs revenue and that they believe these taxes will not cause adverse effects to the economy. But like the OTT tax demonstrated, might government be betting on the effect these taxes will have on business and be hoping all will be well?

For now businesses are on their own and must generate their own ingenuity to survive the on-going disruptions and turbulence. In the outlook, as Covid-19 evidently still lingers, perhaps government can apply some brakes on its growth and investment ambitions to help the businesses which have survived strengthen themselves, because the constant justification for government’s need for revenue means going back to institute more taxes to struggling businesses. 
The tax base must be widened and deepened but ignoring the reality of the Covid 19 pandemic and its effects could prove counterproductive if government exhibits no sensitivity.