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NRM proposes new taxes on fuel, sugar [Daily Monitor, The (Uganda)]
[March 13, 2014]

NRM proposes new taxes on fuel, sugar [Daily Monitor, The (Uganda)]

(Daily Monitor, The (Uganda) Via Acquire Media NewsEdge) Kampala.

You will have to dig deeper into your pockets to buy processed milk, locally produced chocolate, sweets, chewing gum, computers, car fuel, paraffin and wigs if new taxes proposed by a ruling party advisory committee on the budget are approved, it emerged yesterday.

The proposals are contained in a report by the presidential advisory committee to be discussed in Cabinet early next week, according to sources.

The report dated March 11, a copy of which the Daily Monitor has seen, also proposes to introduce a tax on private schools and tertiary institutions, a 3 per cent stamp duty on sale of land and building, a 1.5 per cent railway development levy and the revival of the Co-operative Bank.

On the restoration of Co-operative Bank, the report asks Cabinet to make a policy decision to appropriate Shs28 billion to the cause.

Bank of Uganda closed the Co-operative Bank on May 19, 1999. In March 2006, the deputy governor at BoU told the bank's creditors that their bank was closed on account of insolvency occasioned by imprudent practices. One of the members on the advisory committee, who spoke on condition of anonymity because they are not the official spokesperson of the team, said the rationale for the tax proposals is to help government plug the gaps brought about by the aid cuts by donors.

Yesterday, Mr Jim Mugunga, the spokesperson at the ministry of finance, said the government is "aware of" what has been proposed.

"The ministry has been part of the consultations... Government commenced a budget-making process which is widely consultative. The issue of the presidential advisory committee is one such process. So many proposals come through such processes but not all of them go through.

Every Ugandan has a right to make proposals during budget process and what the MPs are doing is not any different," he said.

Mr Mugunga, however, said he "cannot tie the proposals to the aid cuts," noting instead that "I will say it is part of the ongoing budget process."Commenting about the tax proposals, Ms Cissy Kagaba, the Anti-Corruption Executive Director summed them up as "self-enriching".

"The proposals are unfortunate and we would not have had them if we could see value addition but all this money being collected shall end up in the pockets of a few," she said yesterday.

The Presidential Advisory Committee on the Budget is an entity that was formed in February last year during an NRM parliamentary caucus retreat in Kyankwazi with an informal mandate to research, and come up with budget proposals in line with the party manifesto.

According to its structure, this body is chaired by the President but its meetings are led by Mr Tim Lwanga, who is also the chairman of the parliamentary committee on Budget. If adopted by cabinet, the committee proposals could be included in the 2014/15 budget which will be read in July.When contacted, Mr Lwanga, who was driving from Jinja, refused to comment. "Where did you get that information?" he asked. "Someone has given you a document which is not fully pegged and for a person of my position I cannot comment on it without seeing what you have." He added, "Be careful about what people give because some can just print a document and give it to you."Justifying the imposition of VAT on the supply of processed milk, the committee says in the report that it seeks to increase revenue from the agricultural sector and remove revenue loss as a result of refunds made to milk processors and suppliers.

"The committee recommended this revenue measure arguing that the number of persons consuming processed milk and milk products is small compared to the general population as a whole," the report reads.

The proposal on milk is expected to rake in Shs19.9 billion. However, the report recognises that it "may have a negative impact on local farmers."The committee further defends its advice for the removal of the exemption of income tax on private educational institutions arguing that there are many private institutions making profits as businesses.

Gambling, sugar, hotels and fuel taxesIn search for Shs8.5 billion, the committee proposes a 15% tax on all wins made through gambling. This is different from the gaming and pool betting tax which is directly paid by a gambling house.

Justification: "To bring these winnings by gamblers into the tax bracket and to promote responsible gambling since there are already regulations in the offing which are going to enforce stricter controls over these betting houses." The tax is to be automatically deducted by the gambling houses, which are proposed to be designated as withholding agents.The committee also proposes a restoration of excise duty on sugar to Shs100 per kilo.

"The committee recommends that this measure be upheld but caution should be exercised since sugar is a political commodity," the report reads. The proposal expects to bring in Shs8 billion.

Excise duty on sugar was reduced to Shs25 in 2011 when prices escalated due to shortage but, the report reads, the sugar industry is now stable and prices have reduced to an average Shs2800 per kilo.

Ms Kagaba said yesterday that "majority people will stop taking sugar if the price is over hiked. But taxing processed milk is a welcome idea as it will encourage women to breastfeed their babies," she said.

The committee also proposes to reinstate VAT on hotel accommodation. This is expected to bring in Shs16 billion. "Government agreed with stakeholders to reinstate VAT on hotel accommodation effective July 1, 2014," the report reads. "The accommodation bookings from July 1 should be VAT inclusive." Moving on, the proposal to tax paraffin is also back with a target of Shs15 billion and it is aimed at mitigating adulteration of fuel because, the report notes, the lower the price of paraffin, the more the incentive to use it to adulterate other fuels.

The paraffin proposal was defeated on the floor of Parliament but the committee recommends that it should be returned and that revenues accruing from it be ring-fenced for purposes of taking solar energy to rural communities. The Shs50 increase in excise duty on diesel and petrol is aimed at raising Shs56 billion which shall be ring-fenced for road maintenance. "There is an increase in [the] number of vehicles using the roads which reduces the useful life of our roads hence the need to provide additional funding for regular road maintenance," the report reads.

Shadow minister for Finance, Geoffrey Ekanya, yesterday said Ugandan must discourage taxing sugar and paraffin.

"Sugar is important in the growth of our bodies and taxing it shall discourage people from taking it. It is also deadly to tax private schools because they shall hike school fees and education will become unaffordable," he said. "We can widen the tax base by taxing imported chocolates, gambling and environmental tax," Mr Ekanya said.

Shadow Minister for Justice and Constitutional Affairs Medard Ssegona said as Parliament, they will again oppose the proposed tax increases particularly on paraffin, sugar and processed milk that directly affect the common man.

"Uganda is promoting nutrition. Isn't it a contradiction that processed milk would be taxed? Do we want to see more malnourished children in the country?" asked Mr Sseggona.

The revenue measure on new computers, printers, computer parts and accessories was agreed upon by the committee arguing that computers have become cheaper and are widely used.

However, government shall "still provide access to computers for the poor through support to schools". The proposal targets Shs15.93b.

The committee classified artificial hair, locally produced chocolate, sweets, chewing gum and biscuits as luxuries which should be heavily taxed.A proposal to expand the scope of 6% withholding tax to include sale of land and buildings with a target of Shs45.4 billion was rejected. Instead, the committee has proposed that Uganda Revenue Authority should focus on increasing stamp duty for the two articles from 1% to 3%. That will rake in Shs21 billion.

A further proposed 1.5% railway import levy with a target of Shs156 billion will help in the development of the railway subsector. However, the committee report notes, the cost of doing business will consequently go up, resulting in Uganda losing its competitiveness regionally.

"Government needs to take the risk of reducing Uganda's competitiveness in the short run for the sake of the development of the rail sub-sector which needs Shs7.5 trillion to revamp," the report notes in part.

A similar argument is raised for the $0.5 export levy for unprocessed tobacco leaf. The committee thinks this will encourage value addition. "Most of the tobacco is exported to Kenya for manufacturing," the committee says.

"This deprives Uganda of value addition and other economies of scale especially employment and tax revenue." If implemented, expected revenues from taxing unprocessed tobacco are Shs25 billion Revenue Measure implicationsVat on processed milk Shs17.97bIntroduce tax on private schools Shs30bVat on supply of new computers Shs15.93bShs200 per litre of paraffin Shs15bShs50 on diesel and petrol Shs56b20 % levy on unprocessed minerals and review royalty regime Shs8bReduction of initial allowance rates on eligible property Shs40b Expand excise duty on money transfer to include other value added services by telecom companies Income tax on winnings by gamblers and designate Gambling Houses to 15% withholding tax Shs8.5bRevise presumptive tax threshold and increase rate from 1% to 3% Shs20bSeparate rental tax from other business income for companies and other corporate bodies Shs11b Reintroduction of 1% levy on international calls other budget prioritiesDeveloping source of the Nile Shs5 billionPiped water in emerging townships Shs35.9 billionCourt awards and arrears Shs254 billionSupport of office of the Prime Minister (communication strategy, web portal and executive department) Shs4 billionImplementation of Bunyoro Teso development plan Shs6 billion (c) 2014 Nation Media Group. All Rights Reserved. Provided by, an company

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