By Peter Kaujju
THE capital markets sector expects comprehensive pension and social security reform in the coming Budget if Uganda is to accumulate sufficient savings and long-term funds for investment, sources have said.
Simon Rutega, the chief executive officer of the Uganda Securities Exchange (USE), says the trend of Ugandaâ€™s capital markets is positive but more incentives are needed.
â€œThe pension funds to gross domestic product ratio is only 4.2%, with an average of only 300,000 contributors. We need a regulator for the pension sector,â€ Rutega says.
Experts say they also expect a change in tax policies like reduction of 10% withholding tax on dividends to 5% in order to attract and retain more investors into the sector.
Uganda has the highest levy on dividends in East Africa. Kenya and Tanzaniaâ€™s levy is at 5%.
The sector also wants a reduction in corporation tax for listed entities from 30% to at least 25%.
â€œThe sector is growing and there is more competition, which is good for the market. But we need tax amnesty on listed entities especially for the small and medium enterprises (SMEs),â€ Rutega adds.
The USE realised a 27% growth in the first quarter of this year, with turnover of sh36.4b compared to sh28.5b the previous year. The number of deals during the period was up to almost 4,000 from 3,319.
Rutega says domestic capital markets have the potential to raise millions of dollars from scratch compared to 10 years ago.
The sector has about 50,000 investors from a population of 28 million.
Japheth Katto, the chief executive officer the Capital Markets Authority (CMA), says: â€œIt is important that the market has a number of institutional investors to enhance savings.â€
Katto says as a young market, incentives are important to boost the sector because Kenya and Tanzania already have them and are ahead of Uganda.
â€œWe expect special measures that encourage raising funds for infrastructural development by the private sector through special tax relief on interest,â€ he says.
Njoroge Ngâ€™anga, the general manager of Dyer and Blair, an investment bank, says the Government has supported investment in the sector by not taxing capital gains tax for individuals.
To encourage more investment in the sector, Ngâ€™anga says withholding tax on dividends should be reduced and harmonised at a lower level in East Africa.
â€œThe Government can boost the sector by further divesting in corporations including utility firms. This will encourage savings, diversify the balance sheet of the corporations and boost corporate governance by having the public and our regulators become its watchdogs,â€ he says.