Budget: Analysts examine its impact on economic growth

Kampala

The tax regime proposed by Finance minister Maria Kiwanuka for the next financial year has been criticised as likely to impede economic growth.

The government, in the Budget for the FY 20142015 starting July presented to Parliament on Thursday, proposed a wide range of tax increments and introduced new taxes on previously zero-rated goods and services.

Motorists will have to pay a little more after tax on a litre of petrol and diesel was increased by Shs50 in order to raise Shs60 billion in revenue and Shs200 on kerosene to generate Shs15 billion. A litre of petrol costs between Shs3,600 and ShsShs3,800. Diesel costs Shs3,200.

The ordinary grocery shopper will also pay more for basic items like sugar and milk. Excise duty on sugar was raised from Shs25 to Shs50, a measure government said will generate Shs7 billion. Currently, a kilogram of sugar costs Shs2,500 but this may shoot to about Shs3,000 or even more.

Other taxes that are likely to bite include the 10 per cent raise on mobile money transactions and all goods and services procured by government directly or with the donor support and on bank charges and money transfers.

Taxes will also be levied on educational materials, agricultural products (milk, fertilisers, machinery and cereals grown), which, according to experts, will mostly affect the “poor” and may also widen the income gap.

Ms Jane Nalunga, the executive director of the Southern and Eastern African Trade, Information and Negotiations Institute (SEATINI), a trade aocacy organisation, is of a view that the budget reflects a “big disconnect” between what government says about socio-economic transformation and the tax regime.

“You cannot tax the poor when the income gap is ever widening. The aim of any tax policy should be to go beyond revenue generation. It has to look into how it nurtures the economy and represses the bad businesses such as sports betting,” she said.

Ms Kiwanuka, however, armed with the theme for the Budget “Maintaining the Momentum for Investments, Growth and Socio-Economic Transformation”, said it is a corrective measure taken by government to improve revenue performance.

The Secretary to the Treasury, Mr Keith Muhakanizi, explained to Saturday Monitor, that the measures are possible and viable because the private sector has been cheating government and flouting on the tax collections.

Mr Muhakanizi said: “We had provided exemptions on so many commodities but we realised they are not reflected in the economy. For a very long time, we have exempted agriculture from taxes but the banks, which provide loans to farmers, have maintained their interest rates high, which is a disservice to both us and the farmers.”

But according to Mr Francis Kamulegeya, the Price WaterHouse Coppers country Senior Partner, the taxes will not be popular because it depends on what government is planning and what it intends to achieve.

Gains

There have been some gains. Teachers will earn an extra 15 per cent income on their salaries, while other public servants too will register a marginal raise.The roads and energy sector have got more money, which should see an improvement in the state of the roads and access to electricity, especially in the rural areas. The roads sector will receive Shs2.6 trillion, up from Shs2.51 trillion last Financial Year. The energy sector will receive Shs1.71 trillion from Shs1.7 trillion last financial year.

musisif@ug.nationmedia.com

SOURCE: Daily Monitor

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