In Summary

President Museveni during the State-of-the-Nation address delivered last Thursday, chest-thumped about the progress so far made, reflected in thousands of kilometres of roads upgraded to bitumen, many with exclusive government financing, as well as the addition to the national grid of 183-megawatts of electricity following the completion and commissioning of Isimba dam this year.

Taxes on imports and petroleum products and pay as you earn remittances will be the government’s biggest revenue generators to fund the 2019/20 Financial Year budget due to be read this afternoon.
According to our analysis of the revenue sources itemised in official documents, corporate tax, which is a levy on net earnings of a corporation or company, will be the fourth largest contributor.
Looked overall, the government plans to bankroll up to 77 per cent of the Shs40.5 trillion budget, the largest since President Museveni captured power 33 years ago. Donors will pick the remaining bills.
It is the last budget, by the government proclamation, to leap-frog Uganda into the middle-income status by 2020 --- although experts have said such an evolution is a mirage.

Top government officials say the Executive has read the riot act for Uganda Revenue Authority (URA) to diversify the tax base and close loopholes exploited by big players to avoid or evade tax liability.
Insiders say URA officials will be more aggressive in compliance enforcement starting next month. And the penalties for transgression will be stiffer.

Tax on selective imports
As a first step, and in line with the government’s policy to promote local manufacturing, christened as ‘Buy Uganda, Build Uganda’, or BUBU, the tax body is imposing a raft of inhibitive taxes on select imports.
Tax on imported cooked food, including Irish potatoes, will, for instance, in the new Financial Year that starts on July 1, jump from the current 25 per cent to 60 per cent.
A similar tax measure will apply on imported peanut butter, bread, chicken, pork, beef and mutton.

Tax on imported wigs, false beards, eye brows and lashes as well as artificial human hair will increase by 35 per cent, meaning the beauty industry, which is a significant employer particularly of youth and women, will plunge into rough seas.
New levies are also in the pipeline on imported cosmetics and related products as will new taxes on imported chewing gum, sugar confectionery (sweets), furniture and mattresses.

URA expects to collect Shs11.6b in taxes on cosmetics. The government will rake in Shs51b from the Over-The-Top (OTT) tax, better known as social media tax, which sparked protests when it was first introduced this ending Financial Year.
Beer, spirits and cigarettes will generate about Shs1 trillion while sugar and cement, a family item and essential material for the booming construction industry, respectively, will fetch Shs350b.
URA will pick nearly Shs250b on mobile money transactions, which attracts 0.5 per cent tax on a subscriber withdrawing or receiving cash.

In total, the government plans to collect Shs19 trillion in taxes and raise an addition Shs1.46 trillion from non-tax sources such as motor vehicle fines, driving permits, and passport fees.
Although the government’s interest in the new budget is to use fiscal instruments to stimulate local industrialisation and spur economic growth while reducing the balance of payment deficit, analysts worry a lack of corresponding local manufacturers’ capacity could create artificial shortage and trigger either inflation or smuggling, if not both.

There is another downside: One in every four shillings in the 2019/20 Financial Year budget will be spent on repaying loans, which by the end of last December had eclipsed Shs43 trillion.
Shs3.1 trillion, or 7.6 per cent of the total budget, will be spent exclusively to pay interest on loans, some of which were borrowed but not utilised.

Contrasting Act
In an act contrasting decisions by Members of Parliament, constitutionally mandated to appropriate national resources, the government plans to raid Shs445.8b from the Petroleum Fund, a kind of ring-fenced sovereign fund, to finance the budget shortfall.
There is currently only Shs288b remaining in the kitty, after the government dipped its finger to access the money without prior parliamentary authorisation.
In a report on the Fund, Parliament’s Budget Committee noted “with concern that the government is now proposing to withdraw resources amounting to Shs445.8b from the Petroleum Fund, yet this was not provided for under the approved Budget Framework Paper for FY 2019/20.”
It remained unclear under what law or authority Finance technocrats will access and disburse the money.

According to the allocations, the ministry of Works and Transport will, at Shs6.4 trillion, gobble up a lion’s share of the budget.
This is unsurprising as the government continues its priority of infrastructure development, from roads to hydro-dams and airport construction or expansion.

Progress in the country
President Museveni during the State-of-the-Nation address delivered last Thursday, chest-thumped about the progress so far made, reflected in thousands of kilometres of roads upgraded to bitumen, many with exclusive government financing, as well as the addition to the national grid of 183-megawatts of electricity following the completion and commissioning of Isimba dam this year.
Another 600-megawatts is expected to be generated from Karuma dam that the Uganda Electricity Generation Company Limited (UECGL) says will be ready for commissioning at the end of this year.

These investments, President Museveni noted, are critical to link farmers to markets, fast-track Uganda’s development and accelerate its ascent to middle-income status.
One significant shift in the budget is an increase by Shs1.5 trillion in the allocation to the Defence ministry when Uganda is battling no insurgency.
Most of the money is for classified expenditure, which is exempt from public scrutiny due to sensitivity of national security procurements.

Earmarked sources

Source Tax Value (Shs)
Pay as You Earn 3.25 trillion
Corporate tax 1.28 trillion
Petroleum Duty(fuel) 2.23 trillion
Tax on imports 4.53 trillion
Phone Talk Time (local) 572.09 billion
International Calls 28.26 billion
Bank Charges 126.18 billion
Driving Permits 44.86 billion
Passports 31.95 billion
Traffic Fines 110.15 billion
Over the Top Tax (OTT) 51.27 billion
Cigarettes 22.91 billion
Beer 571.4 billion
Spirits 329.4 billion
Sugar 209.9 billion
Cement 149.9 billion
Cosmetics 11.6 billion
Mobile Money 246.1 billion
Cooking oil 33.26 billion
Motorcycles 4.63 billion

mkyeyune@ug.nationmedia.com