Suruma reads 2005/6 budget, promises increase in taxes

Finance Minister Dr. Ezra Suruma delivered the 2005/06 budget at the meeting of the 5th Session of the 7th Parliament.

The theme of this year's budget is: Promoting Economic Growth and Household Incomes through increased savings, Investment, Employment and Productivity. Below is the full budget speech

PRELIMINARIES

Your Excellency the President, Mr. Speaker Sir, Honourable Members of Parliament,

1) I beg to move that Parliament resolves itself into a Committee of Supply for the consideration and approval of:

a) The Revised Revenue and Expenditure Estimates for the financial year 2004/2005; and

b) The Budget proposals for the Estimates of Revenue and Expenditure for the financial year 2005/2006.

2) Mr. Speaker Sir, under Article 155 (1) of the Constitution, the President shall cause to be prepared and laid before Parliament estimates of revenue and expenditure for each financial year. I am accordingly performing this duty on behalf of the President.

INTRODUCTION

3) Mr. Speaker Sir, permit me to start by observing that this budget day falls between Martyrs Day which was last Friday and Heroes Day which is tomorrow.

These are occasions on which we are reminded of fellow Ugandans who made the supreme sacrifice of giving up their life for the rest of us.

I pray that the good that comes out of this budget will honour their memory.

4) Mr. Speaker Sir, I beg to remind honourable members and fellow Ugandans that the Budget of Government is a statement of the revenues the Government expects to collect over the next 12 months, and how it plans to spend those revenues.

It is noteworthy that the Government expects to collect 13.4% of Uganda's Total Income.

The remaining 86.6% of Uganda's Income will remain in the hands of the private sector and will be utilised by the Ugandan people.

However, the Government will spend additional money that it will acquire from external sources equivalent to approximately 9.5% of the Gross Domestic Product (GDP). Therefore the Government's Total Spending will be approximately 23% of GDP.

5) The Main Purpose of this budget is threefold:

i) The first purpose of the Budget is to help in increasing the production of goods and services so that the average standard of living improves rapidly and poverty is correspondingly reduced. This is Economic Growth.

ii) The second major purpose of the budget is to promote economic order and stability by encouraging competitive efficiency and controlling inflation. This is Macroeconomic Management.

iii) The third purpose is to provide services which are vital to our country and which only government can do best namely Security, Law and Order, Infrastructure such as roads, and Disease Control such as epidemics etc. This is the provision of Public Goods.

6) Therefore, Mr. Speaker, the overall objectives of this budget are to promote economic growth while maintaining a stable economic environment and providing funds for essential public services.

7) However, these objectives must be seen in the long-term perspective of transforming Uganda into a peaceful and prosperous country.

The long term vision or plan in which this budget falls is the continued improvement in household incomes, increased productivity in agriculture and food security, industrial development; the maintenance of security, law and order and democratic governance; the continuous rise in average educational attainment; increased prevention of disease, improvement in health access and increased life expectancy of Ugandans; universal access to clean water; improvement in human shelters; employment and universal social security.

8) These objectives are already contained in the national Poverty Eradication Action Plan (PEAP). The PEAP recognises that although major progress has been achieved in the reduction of poverty on a long-term basis, from 56% in 1992/93 to 35% in 1999/2000, the proportion of people living below the poverty line has recently increased to 38%.

The PEAP 2004 has, therefore, focused on addressing this core challenge. The strategies I am going to describe are fully consistent with the PEAP 2004.

The National Planning Authority will develop a revised national perspective plan for long-term development with performance targets which will help to guide future allocations of resources. Government will also refine indicators to measure and monitor progress towards these social goals.

9) Mr Speaker Sir, before I spell out the details of the Budget for the financial year 2005/06, please allow me to highlight key issues underpinning the budget strategy for the same period.

ECONOMIC GROWTH STRATEGY

10) Mr. Speaker Sir, in line with the above objectives, the Budget for financial year 2005/06 will provide strategies and financing for Promoting Economic Growth and Household Incomes through increased Savings, Investment, Employment, and Productivity.

This Budget aims to re-orient public expenditures towards increased investment in agriculture, value addition through industrial processing, and innovation. These are the areas we believe to be most likely to yield high rates of return and household incomes. Mr. Speaker Sir, in order to accelerate the rate of growth we must increase Savings, Investment, Productivity, and Employment. We now turn to these important policies.

Mobilising Savings

11) The people of Uganda have known from time immemorial the importance of dividing their resources so as to provide not only for today but also for tomorrow. We do know that it is important to put aside seed for planting, to increase our herds of sheep, goats and cattle, and to maintain cassava, sweet potato and banana gardens to sustain us through the days ahead. Mr Speaker, what we seem to have lacked and still lack is how to shift traditional savings into monetary savings, maintain the social security that traditional savings serve, and pool these savings into institutions that can intermediate them as credit.

12) In order to address this problem, the Government has embarked on a program to mobilise the rural population to participate in microfinance institutions as shareholders, depositors and borrowers. This programme to transform subsistence wealth into monetary wealth will substantially increase the volume of trade, monetary savings as well as credit particularly in rural areas where banking facilities are few.

13) Mr. Speaker Sir, I applaud those who have already mobilised the people into savings and credit institutions. I have visited some of these institutions and the results are truly impressive. Government will build on these efforts to ensure that there is a microfinance institution in every sub-county within 3 years and eventually we hope to reach every parish.

Enhancing Investment

14) Mr. Speaker Sir, Investment is the addition to our productive capital. In the agricultural sector, the investment required is a more and better seed, hoes, oxen and oxen ploughs, tractors, harvesters, fertiliser, insecticides, herbicides and vehicles for commodity transportation. These investments must be made in increasing amounts if agriculture is to grow. In industry, examples of investment include machinery, factories, research, development and innovation of new technologies and procurement of raw materials.

15) Both investments in agriculture and industry requires investment in infrastructure in the form of electricity generating plants, navigable roads and railways, properly equipped airports, harbours, as well as law and order, financing and security infrastructure. The investment must be made in all these sectors. The greater the investment, the higher the likely rate of growth of productivity and the total production capacity of the Ugandan economy. Therefore this budget aims to re-orient public expenditure towards increased investment in agriculture, industrial processing, innovation, standardisation, microfinance, long term finance, roads, energy, tourism and trade.

Raising Productivity

16) Mr. Speaker Sir, we seek higher productivity in all spheres of our economy for two important reasons. First, because we seek to derive more income from our productive efforts and second because we must compete with the rest of the world for markets. More agricultural productivity for instance on maize or cotton farms means that we increase our harvest from one ton per hectare to four tonnes per hectare for maize and from 300kg to 1,000kg. for cotton. Such increases in productivity expand our food and raw material stocks as well as our surplus for additional income.

17) As Ugandans, we must constantly strive to increase efficiency, lower production costs and improve quality in order to compete favourably with the products of others.

We must consistently increase investment in better equipment and therefore better technology so that we can increase productivity in terms of quantity, quality and cost. Our heavy investment in education and health will also certainly lead to higher productivity.

The priority for increasing productivity will be achieved through mobilisation of the population for increased saving, credit, production, provision of appropriate technologies and linking agriculture to agro-processing industries.

18) Mr Speaker Sir, for the purpose of raising agricultural productivity I am allocating an additional sh33b to the Agricultural sector.

Increasing Employment

19) According to the Household survey of 2003, Uganda had a labour force of approximately 9.3 million, of whom 87 per cent was in rural areas.

The majority of the labour force was employed in agriculture, with 67.8% in hunting and forestry, 11.6% in sales, maintenance, repair of motor vehicles and household personal goods and 6.1% in manufacturing.

20) Recent Uganda Bureau of Statistics surveys indicated the status of employment, for example among the youth, women and in urban areas.

The highest relative unemployment rates were observed in the younger age groups with a peak in the 20-29 age bracket at 5.5%. Unemployment was also higher in urban areas at 12.0% as compared to 1.7% in rural areas.

21) To respond to the challenges of reducing poverty and improving the welfare of the people, the Government has made the issue of investment and employment creation an urgent priority. In order to increase employment opportunities, the Government will implement the following programs:

a. A Rural Development Strategy will be implemented to reduce under-employment in the agricultural sector.

b. The increase in microfinance activity will contribute to employment creation both directly and indirectly.

c. Government will start a program to lease Government land in parcels of economic size to Ugandans, especially the youth, who wish to make a start in organised agriculture with provisions for mechanisation, irrigation, extension and marketing services.

d. Government will extend assistance to farmers on land adjacent to out-grower schemes so that they too can participate in production for companies engaged in processing rice, sugarcane, oilseeds, sorghum, cassava, bananas etc.

e. Investing in public goods and services, such as roads, utilities, industry and infrastructure not only creates jobs but also facilitates private investment which provides further employment opportunities.

f. Construction of shelters for artisans with equipment for hire will also increase employment and improve working conditions in urban areas.

22) Mr. Speaker, as part of the additional resources for agriculture, and in order to stimulate employment for the youth and women, I propose to allocate Sh1b.

Rural Development

23) Mr. Speaker Sir, in February 2005, Government announced a far-reaching rural development strategy. The key elements of that strategy are as follows:-

a) Provision of support to Farmers' Groups, Associations and Organisations in order to improve management, record keeping, production planning, savings and credit mobilisation, produce handling, storage and quality control, as well as marketing;

b) Enhancing Rural Micro-Finance Services Provision through building the institutional capacity for savings and credit mobilisation, planning and assessment in collaboration with extension workers;

c) Establishment of a Community Information System to report regularly on conditions in rural areas. These statistics will include land holdings, land utilisation rates, outputs of various crops, livestock, fisheries, pests and diseases, and other vital social statistics.

d) Enhancement of access to domestic, regional and international markets. This will be done through the organisation and linkage of farmers groups and organisations to consumers, processors and produce buyers.

e) Facilitate the delivery of agricultural inputs.

f) Enhancement of agricultural productivity through agricultural extension.

g) Agro-Industrial development through enhanced support to research and development.

h) Support to the Uganda National Bureau of Standards for quality control and assurance.

Industrial Development

24) Mr. Speaker Sir, the pace of Industrialisation must be increased. In order to support Industrialisation, research and development must be encouraged, more and cheaper long-term financing must be available, the foreign direct investment must be attracted, and a bigger and growing market for industrial products must be found.

Government will put in place a mechanism to support research and development.

The Innovation and Industrialisation Fund to support research and development will be operationalised.

Emphasis will be placed on the development and commercialisation of suitable proto-types for small and medium scale enterprises. Support will be given especially to research and development in processing agricultural products and other strategic industries.

25) As part of our Industrial Development Strategy, Government recognises that Energy supply is critical to the development of modern manufacturing and services.

It also plays an important role in rural development. With the national demand expected to peak at 650 megawatts by 2010, Uganda's current level of energy supply of about 317 megawatts is inadequate.

Every effort will be made to ensure that Government commences the construction of a major hydro power dam on the River Nile in financial year 2005/06.

26) With regard to increasing sources of long-term capital, the Uganda Development Bank is to be re-opened in financial year 2005/06 to serve new and existing businesses especially in industry and agriculture. I will return to this matter later when I discuss financial sector developments.

MACRO ECONOMIC MANAGEMENT

27) The People of Uganda are fully aware of the long and hard struggles we went through to stabilise our economy so that people no longer have to line up for commodities, or hide their foreign currencies at airports and border crossings, or line up at petrol stations that do not have fuel. We all thank God that those days are behind us.

However, it is these sad memories, Mr Speaker, that underlie our cautious approach to Government expenditure and our commitment and determination to ensure an economy free of excessive inflation, free of excessive exchange rate fluctuations and upheavals in interest rates.

It is a fact of historical significance that the NRM Government has demonstrated that it has the will, the discipline and the know-how to maintain a stable macroeconomic system. This commitment to maintain macro-economic stability will remain.

28) Consequently, the Government will continue to execute its budget within the overall limit approved by Parliament, and in a manner that is conducive to meeting our inflation target of 5 per cent per annum.

At the same time, the Bank of Uganda will receive our support in the conduct of prudent monetary policy.

29) Mr. Speaker Sir, before I come to Government's actions to provide public services in financial year 2005/06, allow me to briefly review performance in the financial year which we are now ending.

FY 2004/05 ECONOMIC PERFORMANCE & FY 2005/06 OUTLOOK

Economic Performance Growth

30) Real GDP at market prices is projected to grow by 5.8 per cent in financial year 2004/05. In nominal terms, GDP is estimated to amount to sh15,134b up from sh13,200b. Taking into account our population of 26.7 million, this amounts to almost sh570,000 GDP per capita compared to about sh510,000 in 2003/04. This is a nominal increase of about 11%.

31) The Service sector is projected to account for 43.3% of national output, while Agriculture accounts for 36.3% and Industry 20.4%. The rate of growth in Agricultural output is expected to rise from 1.6% in financial year 2003/04 to 2.1% in financial year 2004/05.

Although agriculture still has the lowest growth rate of the three major sectors by a considerable margin, the slight rebound in growth in financial year 2004/05 represents a welcome reversal in the declining trend since 1998/99.

The improvement is due to a recovery in cash crops and livestock, even though food crop growth remained low.

The poor performance of food crops is attributed to the poor and erratic rains during the first season of 2004 that affected crop plantings in some districts during the second season.

At the beginning of 2005, the districts in the Northern region experienced prolonged drought. Delayed rains, poor soils, pests and crop and livestock disease, aggravated the situation. The continued vulnerability of the agricultural sector to exogenous factors emphasises the need for a sustained Rural Development Strategy. 

Industrial Production

32) Mr Speaker Sir, Industrial output is projected to grow by 9.1 per cent in financial year 2004/05, its highest growth rate since 1998/99.

This is a result of sustained strong growth in construction and a rise in the growth of formal manufacturing, mining & quarrying.

In addition, Services are expected to grow by 7.2% in financial year 2004/05, with growth in wholesale and retail trade, and transport & communication driving the performance of the sector.

Investment

33) Investment is projected to increase to 22.3% of GDP, of which Private investment is projected to increase by almost half a percentage point of GDP to 17.3% in financial year 2004/05.

Our rate of domestic savings, although still low, is expected to rise by a percentage point to 9.8% of GDP.

This is welcome progress towards greater sustainability in our domestic economy.

Exports

34) Total exports of goods and services are expected to grow by 10 percent in financial year 2004/05 and to exceed US$1b for the first time. Growth in exports in dollar terms has been driven by the strong performance of non-traditional exports such as fish and flowers and a rebound in international coffee prices.

Inflation

35) Mr Speaker Sir, we have once again been successful in financial year 2004/05 in meeting our objective of controlling annual inflation at an average of 5 per cent or less. Although the erratic rains experienced over the past year have driven food crop annual inflation to an average of 23% in 2004/05, annual inflation excluding food crops is expected to be 4.5 per cent.

Economic Forecast

36) Real GDP at market prices is projected to grow by 6.8% in financial year 2005/06. agricultural output is expected to grow by at least 3.7% next Financial Year, as food crop production recovers from the poor rains experienced in financial year 2004/05, and cash crop production is boosted by a rebound in coffee volumes, and as we start to benefit from the replanting programme.

Industrial output is expected to grow by 10.2%. Growth in formal manufacturing, mining and quarrying is expected to remain strong, while electricity production is expected to increase as a result of the introduction of thermal generation and the planned commissioning of two new units at Kiira power station. Services output growth is expected to remain at 6.8%.

Monetary Developments

37) Mr Speaker Sir, performance under the monetary program was good. The March 2005 targets for base money growth were met.

Both the broad money growth and credit to the private sector slowed down, particularly from the large commercial banks. In general, the banking sector remained healthy with a very low level of non-performing loans.

38) The implementation of the regulations under the Financial Institutions Act, 2004 should bring down credit exposure concentration. In financial year 2005/06, the Bank of Uganda will continue to pursue monetary, financial and exchange rate policies aimed at ensuring continued monetary and financial stability.

39) Mr. Speaker Sir, in order to increase competition in the commercial banking sector and therefore help to reduce interest rates, the moratorium on opening new banks will be lifted in financial year 2005/06. Bank of Uganda will now be prepared to license new banks consistent with the requirement of the Financial Institutions Act 2004.

Exchange Rate

40) The appreciation pressures experienced last year continued into financial year 2004/05, driven largely by strong inflows of foreign exchange for investment, high levels of donor aid, particularly project support and transfers to Non-Governmental Organisations as well as increased export earnings.

In addition, the appreciation of the shilling was also partly caused by the persistent weakness of the US dollar on the world market.

Our exchange rate has appreciated by 10% this financial year, causing the imports to grow faster than exports by a significant margin. Imports are projected to grow by 20% in dollar terms in financial year 2004/05, as compared to export growth of 10 percent.

41) These developments which have had a negative impact on our trade deficit, point to the fact that prudent macroeconomic management cannot be limited to inflation control.

We need to create conditions for export growth, by mitigating the impact of dependence on donor funding on our exchange rate and increasing the proportion of our budget which is financed by domestic revenues.

Government will continue to pursue a flexible exchange rate regime and other measures aimed at ensuring external competitiveness and overall macroeconomic stability.

The Bank of Uganda will expand the capacity of its research department to provide timely information on the domestic resource costs of exports in order to assess the competitiveness of the exchange rate.

Interest Rates and Long-Term Government Securities

42) Continued upward pressures on the exchange rate limited Bank of Uganda's use of sales of foreign exchange for liquidity sterilisation purposes. The burden was shifted to the issuance of domestic securities to control inflation.

However, the Government will continue to pursue policies which are compatible with low and stable inflation and which will encourage savings mobilisation, lower lending rates and more private sector borrowing.

Already, securities issued by Bank of Uganda have resulted in interest rates reducing from over 20 per cent in financial year 2003/04 to below 15 per cent in financial year 2004/05.

43) In the capital market, the public continued to respond positively to government securities, including bonds.

There was a manifestation of strong investor confidence in Uganda's economic and macro-economic management and the first ever sovereign rating of Uganda was done by Fitch Corporation which accorded Uganda's economy a heartening 'B' rating.

The Financial Sector

44) In financial year 2005/06 more efforts will focus on deepening capital markets and mobilising long-term finance.

As I stated earlier, the Uganda Development Bank (UDB) will be re-opened to provide long-term financing, equity and guarantee schemes in addition to wholesaling lines of credit.

The Export Guarantee Facility hitherto managed by Bank of Uganda will be moved to UDB and will be extended to cover all exports. I am providing an initial capitalisation of sh5.0b for the UDB.

Furthermore, measures aimed at liberalising the pension schemes will be put in place to provide more avenues for mobilising long-term finance.

45) In addition, in financial year 2005/06, the Bank of Uganda will continue its efforts to supervise and regulate micro finance institutions engaged in deposit mobilisation, with a view to supporting Government's efforts aimed at savings mobilisation and credit to small households.

Regional Monetary Policy Coordination

46) The Bank of Uganda continued to work closely with the Central Bank of Kenya, and Bank of Tanzania to facilitate the formation of a Monetary Union in East Africa. In this respect, officials of the three Central Banks commenced work on mapping out the necessary convergence criteria. These efforts will be continued in financial year 2005/06.

Fiscal Performance

Revenue Performance

47) Mr Speaker Sir, I am pleased to say that our domestic revenue has performed above target.

Total domestic revenue is expected to amount to sh1,933b this Financial Year, which exceeds the budgeted level of sh1,867b.

This performance is due to increased revenue collections by the Uganda Revenue Authority, which are expected to exceed their annual target by about sh80b, even though other domestic sources did not perform on target.

This is attributed to improved administrative efficiency and strong direct tax performance. I congratulate the Uganda Revenue Authority over this achievement.

Expenditure Performance

48) In financial year 2004/05, sh2,432b was released, excluding donor-financed projects. Releases to the Poverty Action Fund amounted to sh813b, resulting in a pro-rata performance of 97.6%. The overall performance demonstrated prudent and effective budget management for the financial year 2004/05.

THE RESOURCE ENVELOPE FOR FY 2005/06

49) Mr. Speaker Sir, the total amount of resources available in financial year 2005/06 are estimated at sh3,799b, representing an increase of 9.7 percent, on financial year 2004/05.

Sixty percent of the budget in financial year 2005/06 is projected to be financed by domestic revenues, amounting to sh2,280b, whilst the balance will be provided through the support of our donor partners.

This represents a significant increase as compared to financial year 2004/05 when 54% of the budget was financed by domestic resources and reflects our objective of gradually increasing the share of the budget that is financed by domestic resources.

It is also consistent with a decline in our fiscal deficit from 9.9% of GDP in financial year 2004/05 to 9.2% in financial year 2005/06.

Interest payments and domestic arrears repayments are expected to amount to sh376b in financial year 2005/06.

This means that sh3,423b will be available to support economic and social development.

SECTOR PERFORMANCE AND OUTLOOK

50) Mr Speaker Sir, I will now reflect on sectoral performance in the financial year 2004/05 and set-out planned outputs for financial year 2005/06 in each sector.

Agriculture and Rural Development

51) In the Agricultural Sector in financial year 2004/05, the major activity was the extension of the National Agricultural Advisory Services (NAADS) to an additional eight districts bringing the total number of districts under NAADS coverage to twenty-nine. A total of 5,600 farmer groups were registered in financial year 2004/05.

52) For financial year 2005/06, I have provided sh148.9b to the Agriculture Sector from sh115.6b this year, representing a 29% increase. The priority interventions in financial year 2005/06 will focus on:

a. Integrated Support to Farmer Groups;

b. Micro Finance;

c. Water for Production;

d. Extension Services;

e. Land Registration;

f. Environment & Natural Resources; and

g. Community & Information Services.

Integrated Support to Farmer Groups

53) The rural development strategy hinges on the provision of integrated support to farmers groups to increase productivity through better agricultural practices, improvement in input supply channels and producer - buyer linkages. This support will be initially targeted at selected crops, in order to raise their production significantly and to impact the livelihood of the greatest number of poor households. Activities include the sensitisation and mobilisation of farmers into farmer groups, including the formation of at least 8,980 farmer groups and organisations.

54) Mr. Speaker Sir, the government will intensify the provision of appropriate technologies and input kits including fertiliser, improved seed, pesticides and herbicides and co-operative storage facilities.

This action will encompass the provision of integrated support to 4,000 farmers groups.

Input kits comprising improved seed, a fertiliser pack and pesticide spray will be provided to maize, rice, sim sim and soya bean farmers. I am allocating an additional sh7b to the Agriculture Sector for this integrated support to farmers.

Extension Services

55) The National Agricultural Advisory Service (NAADS) is central to the provision of integrated support to farmers groups. In addition to extension services provided by NAADS, we will rely on the respective commodity market chains and the private sector players for the delivery of inputs and the marketing of farmers' output.

I am, therefore, providing an additional sh5.5b to enable them to roll out their services to cover a total of 37 districts, up from the current 29, and to 330 sub-counties, up from the current 280 sub-counties.

I am also proposing to review the operations of NAADS to ensure their effectiveness and efficiency.

56) Mr. Speaker Sir, in addition to the above, I am allocating sh5b to enhance productivity in the cotton sub-sector and raise production to 300,000 bales annually. I am allocating a further sh4.5b to clear all outstanding arrears on cotton seed to farmers.

Supporting Micro-Finance Capacity Development

57) This action will entail Government facilitation of capacity building for Micro Finance Institutions (MFI) in order to enhance savings and credit in the rural areas.

Government will assist in the provision of microfinance infrastructure including training in management, record keeping, supervision of savings and credit associations and other rural organisations.

58) I have provided sh2b in financial year 2005/6 to assist in the initial mobilisation, organisation, training and supervision of new institutions. Additional loanable resources are already available within the ministry and measures to strengthen implementation, regulation and protection of these microfinance institutions and their depositors will be unveiled in the near future.

Community Information Service

59) Current and future levels of agricultural output need to be established, recorded and communicated.

This will enable us to know the current levels of productivity, the results of introducing new inputs and technologies (seeds, fertiliser, pesticides and new methods of cultivation).

To measure food stocks, cultivated areas and outputs, we propose to establish a rural reporting system or community information system at Parish level, whereby the Parish Chief reports regularly on the welfare parameters of households, land holding, land utilisation rates and outputs of various crops, pests/diseases occurrences, food stocks and other community statistics.

The Uganda Bureau of Statistics, in collaboration with the Ministry of Agriculture, Animal Industry and Fisheries and Local government, will design the reporting formats and ensure system implementation.

I am allocating sh2b to the Uganda Bureau of Statistics for this exercise.

Water for Production

60) In financial year 2004/05 a total of 43 parish level valley tanks were constructed. In the Karamoja region 11 strategic reservoirs were commissioned and nine windmills for powering high yielding boreholes were also procured. Water for production is a key priority for financial year 2005/06.

Sh2.96b has been allocated for water intended for production and further enhancement of the productivity of the agricultural sector. Objectives include: completing nine parish level valley tanks in Sembabule district, the reconstruction of the Kailong Dam in Kotido district, the construction of two windmill-powered boreholes in Moroto district, and extensive training courses to raise capacity.

61) In view of the need to address 'Water for Production' constraints, I propose to complete the rehabilitation of Irrigation Schemes at Mubuku, Doho and Olweny to prepare them for the necessary hand over to user farmer groups in their respective areas.

This too will increase employment and production opportunities in those areas.

62) Government will also provide relief for the most water stressed areas through implementation of low-cost rain-water harvesting technology and provision of bulk water supply from large water masses.

Initially, the program will cover Bukanga, Isingiro, Kooki, Kabula, Mayuge, Nakasongola and the Teso and Lango regions. Additionally, opportunities for the utilisation of solar-powered pumps for irrigation will continue to be explored and plans will be designed for their implementation.

Land Registration

63) A modern land registry is central to national development as it enhances the security of land rights and therefore creates an environment conducive for investment.

Records in the existing registry, which covers only about 15% of Uganda's area, are in fragile and often illegible condition, out of date, and accessible only at a very high cost.

This generates insecurity of property rights, increases the cost of land transactions, and makes it more difficult to use the land as collateral for formal credit.

64) Rehabilitation work on the land registry has started with reorganisation and indexing of land records in the Kampala Mailo Registry covering records of three districts. Funds have been secured to enhance the rehabilitation of registries nationwide. Beginning financial year 2005/06, the Government will invest funds to ensure:

a. Rehabilitation of land records and establishment of a Land Information System (LIS), and

b. Strengthening of capacity in the management of land records.

Environment and Natural Resources

65) Mr. Speaker Sir, Uganda's future economic growth and its sustainability will depend on how well we manage and use the environment.

During financial year 2004/05, a total of 950km of forest boundaries were reopened, about 79,000 hectares out of 105,000 hectares were recovered from encroachers and 1,000 hectares of forest were planted.

The National Environment Management Authority (NEMA) continued to enhance the capacity of districts and communities in environmental planning and management.

During financial year 2005/06 and in the medium term, Government will aim to strengthen meteorological services, reduce wetland encroachment and preserve the environment and natural resources.

66) Financial year 2005/06 will see the institutional set up of the District Forest Services, an initiative that is envisaged to increase forestry conservation, promote commercial tree planting, and promote the productive capacities of forests to benefit the poor.

67) Concerning Meteorological services and following the outcry that basic meteorological information has not reached agricultural households, the government intends to strengthen the observational network and early warning system to provide timely information for harvests and thus increase yields. I am providing an additional sh0.5b for this activity.

Economic Functions and Services

68) Mr Speaker Sir, the focus of our industrial development strategy is the stimulation of agro-based industries. Government's plan during financial year 2005/06 and the medium term is to support value addition through the Innovation and Industrial Fund.

This Fund, which I mentioned earlier, will be co-ordinated by the Uganda Industrial Research Institute (UIRI) and will be responsible for the incubation and commercialisation of innovations and prototypes.

The Uganda National Council for Science and Technology and the Uganda Industrial Research Institute will be restructured to streamline research and development.

69) In financial year 2005/06 support will largely be targeted value-addition in coffee, banana, gum Arabic and cotton.

I have allocated sh7.25b for the targeted interventions, including those channelled through the capitalisation of the Uganda Development Bank (UDB); and sh2.75b for industrial research and development.

A further sh2b has been provided for Jua Kalis (Artisans) to develop appropriate industrial sites, with utilities and facilities to promote their activities in terms of size, quality, and marketing.

70) In addition, support will be provided to the Uganda National Bureau of Standards to which sh2.3b has been allocated to enhance quality assurance, product certification, laboratory testing and consistency with regional and international standards of agricultural produce.

Energy Development

71) Mr Speaker Sir, as I had mentioned earlier energy supply is critical to the development of a modern economy, and plays an important role in rural development.

In financial year 2005/06, I have allocated sh20b to start an Energy Equity Fund for the construction of a large-scale Hydro-Power Station along the river Nile. I have also allocated sh22b for 50MW of thermal power generation.

In addition, I have allocated sh20b for extension of electricity to 16 district headquarters and the completion of rural power projects.

Tourism Development

72) Mr Speaker Sir, the number of tourists has grown from about 300,000 visitors in the financial year 2003/04 to over 500,000 in the financial year 2004/05.

This rapid growth demonstrates that Uganda is a growing attraction and we should invest in improvements in tourist circuits that are already proven.

It is for this reason that I have allocated sh2b for Tourism Infrastructure Development.

Industrial and Business Parks

73) Government has secured sh22b to develop a modern, well-planned and serviced industrial park at Namanve.

The first phase of this development will make over 100 plots available for industrial and business enterprises geared towards export production.

Government, in partnership with the private sector, will also develop facilities that can be used by small and medium enterprises with job creation potential, such as garment production, shoe making, and Information and Communication Technology (ICT) services.

Infrastructure Development

Roads and Waterways

74) Mr Speaker Sir, Roads and Waterways are critical in boosting production, marketing, incomes and competitiveness, and are therefore central to the Government's Budget Strategy.

In financial year 2004/05, 7,795 km of the national road network received routine mechanised maintenance.

The Nsambya-Ggaba, Pakwach-Nebbi, and Sironko-Kapchorwa roads were completed. The Kyegegwa-Kyenjojo road is expected to be completed this month.

This road has been fully financed by the Government of Uganda's own resources.

75) In financial year 2005/06, the following roads will also be completed: Karuma-Olwiyo, Olwiyo-Pakwach, Fort Portal-Hima, Kagamba-Rukungiri, Busunju-Kiboga-Hoima, and Jinja-Bugiri.

The work on Jinja-Bugiri road, which is central to the Northern Transport Corridor and had been unduly interrupted by the contractor's abandonment of works, will resume by end of this month.

The new projects planned whose procurement is now ongoing include upgrading of the following roads: Soroti-Dokolo-Lira, Kampala-Gayaza-Zirobwe-Wobulenzi, Matugga-Semuto-Kapeka and Kabale-Kisoro-Bunagana/Kyanika.

The Busega-Mityana road will also be worked on. In addition, 87 national road bridges will be repaired and maintained.

76) The Government is purchasing a multi-purpose ship for Kalangala Islands at a cost of Euro 5.4 million, with the objective of providing an efficient, safe and affordable transportation between the Sesse Islands and the mainland.

This ship which will be operational by August 2005, will boost investment, tourism and trade.

Railways

77) In order to reverse the deterioration and improve on the efficiency of rail transport, the Government has entered into an agreement with the Government of Kenya to concession the national railways to a joint operator.

The reform and divestiture of the Uganda Railways Corporation will lead to the creation of a holding company to manage infrastructure assets which remain owned by Government, and a concessionaire to manage operations. Full operations are expected to begin by December 2005.

Social Services

78) Mr Speaker Sir, with respect to social sectors, the combined share of the health and education sectors, as a percentage of the total budget, has more than doubled over the past fifteen years. It has totalled about sh1,000b in financial year 2004/05, with education having the largest share of any sector in the budget.

In recent years, an increasing share of total expenditure has also been transferred to districts for numerous local government development programmes such as district road maintenance, agricultural extension and advisory services, education, Primary Health Care and water.

Expenditure on Local Government programmes in financial year 2004/05 amounted to almost sh800b or 25.1% of total expenditure.

Education

79) Mr. Speaker Sir, Government's heavy investment in Universal Primary Education (UPE) has more than tripled the number of children enrolled in primary school from three million in 1997 to over 7.6 million currently and the gender gap in most levels of primary education has been eliminated.

To meet growing demand, the number of primary teachers on Government payroll has increased by over 50% in the space of four years, from 82,148 in 2000 to 124,137 in 2004.

Enrolment of children with special needs also rose from 20,000 in 1997 to 218,286 in 2002, of which 46% were female and 54% male.

The proportion of enrolled children from the lowest income quintile increased from 50% in 1992 to 83.7% by 1999. Adult literacy has also improved due to Functional Adult Literacy programmes.

80) Government remains committed to its twin objective of delivering Universal Primary Education (UPE) and strengthening post primary absorptive capacity. This is aimed at increasing the transition rate from primary to Senior One from 50% to 80%, and that from Senior Four to Business, Technical and Vocational Educational Training (BTVET) institutions from the current 10% to 50%.

81) For financial year 2005/06, we will continue to improve the quality of education in primary schools and enhance efficiency and effectiveness in teaching and learning.

Mr Speaker Sir, in this regard sh13b, has been provided for primary teacher's salary enhancement. This will increase the salary of a primary teacher from sh130,000 this year to sh140,000 per month next year.

82) Mr. Speaker Sir, with respect to Secondary education sub-sector, there are currently 697,507 students. In line with Government's policy of equitable public service provision, Government sponsored a total of 39,220 and 3,840 scholarships for secondary schools students from IDP camps and poor households respectively during financial year 2004/05.

83) Overall, the education sector has been allocated sh634.5b for next financial year, representing 17.2% of the national budget.

In financial year 2005/06, primary education enrolment in Government schools is projected at 6.5 million pupils, while the number of teachers will increase to 129,000, thus improving, the Pupil: Teacher ratio in Government Schools from 53 to 1 to 50 to 1. An additional sh4b has been provided for enhancing the salaries of University lecturers.

Health

84)Mr. Speaker Sir, there is now clear evidence that the Government's universal primary health care policy and the recent reforms within the health sector have brought about a significant expansion in the use of the health system. Out Patient Department (OPD) attendance has increased dramatically in most health facilities across the country, from 9.3 million new cases in 1999/00 to 17.7 million in 2002/03.

The OPD utilisation rate has therefore improved from a baseline rate of 0.40 visits per person per year in 1999/2000 to 0.72 visits per person per year in 2002/03.

85) Mr. Speaker Sir, immunisation coverage has also increased dramatically. For instance, 83% of the targeted population received the 3rd dose of DPT (DPT3) vaccine. The proportion of people in the poorest 20% of the population who seek care when ill has risen from 46% to 73% between 1999 and 2003. The Government has built 400 new Level II Health Centres and upgraded 180 Health Centres Level II to Health Centre Level III status (including maternity services).

86) For the financial year 2005/6, the sector is targeting OPD utilization of 82% and DPT 3 coverage of 86%. Supervised deliveries at Health facilities are expected to increase to 38% while the approved posts filled by qualified staff are forecast at over 70%.

87) I have allocated sh509.6b to the health sector. Emphasis will be placed on filling the vacant posts at Primary Health Care and referral facilities, provision of supplies, drugs, health supplies, vaccines, and purchase of equipment. An additional 2,000 health workers will be recruited in financial year 2005/06.

HIV/AIDS

88) Mr. Speaker Sir, sustained political commitment and leadership, early intervention, a strong focus on prevention, and a multi-sectoral approach have led to the reduction in prevalence rates in HIV/AIDS. The prevalence of HIV/AIDS has fallen from 30% in 1993/94 to 7% in 2005.

In the financial year, 2004/05 funds from the Global Funds for HIV/AIDS Tuberculosis and Malaria and the US Presidential Emergency Fund for AIDS (PEPFER) were received.

This should enable us to substantially increase our efforts to fight the pandemic and other killer diseases that plague our country.

Water and Sanitation

89) Over the last decade, the Government has made substantial progress in terms of increasing access to safe water. Rural safe water coverage rose from 57.9% in June 2004 to 60% in June 2005 while 2,792 new water points were established. In the urban areas, water coverage increased from 65% to 67% in the same period. A total of 300 new water stand-points to cater to poor communities were installed. In the small towns sub-sector, a total of 13 water schemes were completed. The National Water and Sewerage Corporation also continued system expansion and rehabilitation in order to increase water distribution in all the towns of its operation.

90) In financial year 2005/06 I have allocated sh110.1b for the sector to increase coverage nationwide. In the rural water sub-sector, 2880 new water points to serve almost 700,000 people will be constructed.

In the urban sub-sector, 36 water schemes covering towns including Iganga, Mityana, Mpigi, Pakwach and Nebbi will be constructed over the next three years.

Gender and Social Development

91) Mr. Speaker Sir, the social development sector is mandated to deliver community-level actions to reduce poverty through the promotion of employment, equity, and adult literacy.

The sector received a budget allocation of sh3.84b in financial year 2004/05 and has renovated and equipped 73 community development centres, established three new community libraries, enrolled 477,017 functional adult learners, and reintegrated 500 formally abducted children in various trauma centres.

92) I have allocated sh18.27b for financial year 2005/06 to the Ministry of Gender, Labour and Social Welfare to strengthen the community development function, recruit more Community Development Workers and expand the outreach of the functional adult literacy programme.

Security and Governance

93) Mr. Speaker Sir, with regard to Security and Governance, it has always been and still is the Government's commitment to ensure that peace prevails in all parts of Uganda.

Government has, in particular, made efforts to restore peace in all parts of Northern Uganda and to curtail cattle rustling in the Karamoja region.

Years of insurgency in northern Uganda have diverted national resources and prevented progress in poverty reduction in the war-torn areas.

Now that most parts of the north are peaceful, efforts are being made to secure the villages so that the internally displaced persons can return home.

94) In Karamoja, despite the many challenges, the disarmament programme is progressing well.

So far over 10,000 guns having been recovered through the voluntary approach. Government will in the next financial year complement the voluntary approach with other measures aimed at accelerating the disarmament process.

95) In financial year 2005/06, further steps will be taken to streamline procurement in the Uganda Peoples Defence Forces.

A logistics/ infrastructure system that is consistent with the Public Procurement and Disposal of Public Assets Act will be established.

A policy and planning department and the newly established Defence Sector Working Group will also continue to assist in improving the efficiency and effectiveness of public expenditure.

96) Participation in International Peace support initiatives is anticipated in this financial year in the Great Lakes region, notably Somalia and Sudan. Our promised contribution to the African Union Peace Keeping Force will also be honoured.

97) Mr Speaker Sir, with the return of peace in the north, Government recognises that the region's post-conflict rehabilitation and development are critical.

In light of this, sectors are urged to earmark resources to the north when implementing their sector programmes.

Justice, Law and Order

98) Last financial year, the Police Force recruited and trained 100 cadets and 800 Police Constables, raising total personnel to just under 15,000. Some barracks have been renovated to improve infrastructure.

The Prisons service in the same period reduced congestion in the prisons and the length of stay on remand has been reduced significantly.

99) Mr. Speaker Sir, over the medium term, Government will focus on two strategic areas for reform in this area.

These are criminal justice and commercial justice reforms.

Under the criminal justice reform interventions have focused on four areas; legal services reform; improved administration of justice, improved civic and legal education and law reform.

In the commercial justice sector focus is on commercial court reform, companies and land registries reform, reform of key commercial laws and strengthening commercial lawyers.

Public Administration

100) Mr. Speaker Sir, in order to improve on the efficiency and effectiveness of public expenditure and administration, Government will review, and rationalise public expenditure.

This measure will contribute to achieving cost efficiency and effectiveness in public service delivery.

Government will also ensure that the Sector Wide Approach is strengthened across all sectors.

101) A major area of concern in Public Administration is the accommodation for Government Offices.

It has been observed that Government institutions have entered into agreements with significant budgetary implications, which are proving difficult to accommodate within the available resources. This has severely constrained the discretionary budgets of Ministries and impacted negatively on the operations.

Government will review the policy on accommodation as well as the existing obligations to ensure that accommodation costs are affordable.

102) Mr. Speaker Sir, in order to improve efficiency, Government has also embarked on rationalising the development budget in order to attain the following:

i) realign the development budget portfolio to the PEAP priorities;

ii) streamline significant administrative costs;

iii) enhance monitoring and evaluation; and

iv) ensure that counterpart funding is fully incorporated in the medium term expenditure framework.

103) This should enable us to mobilise resources for an affordable and efficient development portfolio.

Accountability

104) Mr. Speaker Sir, Government introduced the Integrated Financial Management System (IFMS), computerised budgeting, accounting and reporting applications.

Pilot implementation of IFMS was launched in February 2004 in six Ministries and four Local Government sites.

It will be extended to all Central and Local Government votes over the medium term.

105) While it is recognised that public accountability requires the active participation of all sectors of society, the State must take prime responsibility.

The key public policy areas that Government is concerned with over the medium term include tackling and eliminating corruption; ensuring the transparent, effective and efficient collection and use of public resources and building systems of ethics and integrity in public life in Uganda.

106) The launch of the National Anti-Corruption Strategy is a clear demonstration of the commitment of the Government to fight corruption.

As part of the process of strengthening our work in this process, the Government has put in place the Accountability Sector as a key element in the implementation of the National Anti-Corruption Strategy.

107)To ensure effective performance monitoring of all our programmes, a National Integrated Monitoring and Evaluation Strategy (NIMES) has been established.

This strategy provides a mechanism for systematic flow of information relevant for tracking progress in programme implementation at different levels of government.

Key components of the strategy include the statistical development under UBOS; the Local Government Information and Communication System (LOGICS); and the Community Based Information Systems.

Domestic Arrears

108)Government has developed a strategy to accelerate the reduction and clearance of arrears, while consolidating the gains achieved in the various initiatives such as the Commitment Control System, Integrated Financial Management System and the Pre-Payment system, especially for utilities.

For telephone services, I want to reiterate that all ministries must utilise the pre-payments mode to avoid any accumulation of arrears.

Local Government and Fiscal Decentralisation Strategy (FDS)

109) Mr Speaker Sir, the Fiscal Decentralisation Strategy streamlines and harmonises the transfer of resources to Local Governments allowing them to exercise autonomy in decision-making and at the same time enhancing public expenditure management. In financial year 2005/06, Graduated Poll Tax will be removed.

A provision of sh30b has been made to compensate for the suspension. This amount includes the provision of sh2.7b to cater to new districts.

A further sh4b has also been provided to cater for the regional tier. Additionally, in every district, Government will pay the wages of the LC Five Chairman, the Speaker to Council and the LC 3 Chairpersons.

This will help to further cushion the local administration against the loss of graduated tax collections.

Pay and Pension Reform

110) Mr Speaker Sir, pay reform has been a central focus of Government in the effort to improve public service performance. Government is committed to the implementation of the Pay Reform Strategy in order to attract, recruit and retain a competent and motivated workforce in the Public Service.

Government will discourage selective pay awards which jeopardise the implementation of the comprehensive Pay Reform Strategy.

Government will expedite the finalisation and approval of the comprehensive Pay Policy to rationalise pay across public service institutions and agencies.

111) Furthermore, Government will limit any expansions in the size of the Public Service in the context of agreed sector targets and the pay reform strategy.

In financial year 2005/06, institutions that have been divested have not been provided with any wage resources.

Affected ministries are therefore expected to remove these structures from their payrolls.

In addition, the budgeting for salaries should be done according to the staff establishment ceilings provided by the Ministry of Public Service.

112) Over the medium term, Government will undertake the review of current establishment structures including those for semi-autonomous and autonomous institutions, with a view to merging them where duplication will be identified.

For local governments, employees will be recruited in a phased manner, in line with the newly approved local government structures.

Local Governments that recruit employees outside approved structures will henceforth be liable for the costs associated with this recruitment.

113) Mr Speaker Sir, during budget execution for financial year 2004/05, the government experienced salary shortfalls in various votes at the centre and in local governments.

In view of the difficulties caused by supplementary wages, accounting officers will henceforth be required to verify their payrolls every month before wages are paid.

114) Pensions have continued to exert fiscal stress on the budget year after year.

There is widespread consensus on the need to reform the pensions system to prevent arrears accumulating. Government is finalising a contributory pension scheme for all public servants, for members of parliament, ministers, the military and civil servants.

This reform will be implemented in conjunction with reforms in the National Social Security Fund (NSSF).

CONSTITUTIONAL SELF ACCOUNTING BODIES

115) Mr. Speaker Sir, the budgetary proposals of Self-Accounting Bodies have been submitted in compliance with Article 155 (2) of the Constitution.

In accordance with Article 155 (3) of the Constitution, the Government has made recommendations on them.

I hereby lay both the budgetary proposals and the recommendations of Government before this August House, as required by the Constitution.

116) In order for me to submit a fully financed National Budget for your consideration in accordance with Article 155 (1) of the Constitution, the budget provisions of these Self-Accounting bodies are in accordance with the resource envelope conveyed to them in the course of budget preparation, including the presentation of the National Budget Framework Paper to Parliament, in accordance of the Budget Act 2001.

SCHEDULE OF INDEBTEDNESS

117)Mr. Speaker Sir, in accordance with the provision of Section 13 (1) and (2) of the Budget Act 2001, I hereby lay before the House the Statement on: (i)Government's total external indebtedness as at 31st March, 2005; and

(ii) the grants that Government received during financial year 2004/05.

118) With respect to Section 13 (3) of the same Act, Government guaranteed one loan of $ 5.2m to the Islamic University in Uganda during financial year 2004/05.

Details of the utilisation and the performance of each loan and grant, including the extent of the achievement of the objectives and targets, will be provided in the policy statements of the ministries and departments which received the loans and grants as well as in our poverty monitoring and assessment reports.

REVENUE AND TAX MEASURES FOR 2005/06

119) Mr. Speaker Sir, it has been said that there are two certainties in life, death and taxes! While this may paint a depressing picture, taxes produce another certainty, which is, that without tax revenues, no government can make a budget. Taxation is the only practical means of raising the revenue to finance government spending on goods and services most of us demand.

120) Mr. Speaker Sir, there are daunting challenges facing our country that need home-tailored solutions. We face a problem of an unsustainable excessive fiscal deficit.

We have resolved to reduce it down and our target this year is to lower it from 9.9% to 9.2%. We also need to invest in poverty-reducing programmes, which will lift our people out of absolute poverty.

There must be investments in basic infrastructures like railways, roads and electricity to facilitate the attraction of private investments and industrial growth. The lack of adequate and functioning infrastructure is a serious obstacle to Uganda's medium-term growth prospects.

The private sector cannot wait forever for these basic facilities and we must act now to provide them. My taxation measures are, therefore, premised on the need to generate adequate resources to finance programmes essential to our economic goals.

121) Mr. Speaker Sir, by regional standards, our revenue effort is relatively low. We are collecting less than 13% of Gross Domestic Product (GDP) in tax revenue. This is far below the sub-Saharan African average of 18%. We must, therefore, improve revenue generation to reduce external borrowing and its adverse effects on the economy.

Revenue Outlook for 2005/06

122) To enable us to fund the Budget while meeting the fiscal deficit target, total domestic revenues are projected at sh2,280b of which sh2,230b is to come from net Uganda Revenue Authority collections. The balance of sh50b will come from non-tax revenues. This domestic resource represents about 13.4% of GDP.

123) I want to highlight a few important tax issues for the 2005/06 Budget. The full details are contained in the Tax Law (Amendments) and Finance Bill published today.

Income Tax

Credit to Agriculture

124) According to the results of the 2002 Population and Housing Census, agriculture accounts for the livelihood of a very large proportion of the population. Despite this, access to finance is still very poor. To encourage lending to the agricultural sector, I am proposing that interest earned by financial institutions on loans granted to persons engaged in agriculture be exempt from tax. The details will be found in the Income Tax (Amendment) Bill 2005.

Tax Incentives for Collective Investment Schemes:

125) The Collective Investment Schemes Act was enacted in 2003 and the Capital Markets Authority has started licensing companies to operate collective investment schemes.

These are schemes, which collect funds from small savers, who would not be able to access security markets.

The collective investment schemes invest the funds on their behalf (small savers) with the objective of maximising returns and minimising risk for the individual investors.

126) Currently, there are some tax disadvantages collective investment scheme (CIS) investors are likely to suffer in the absence of fiscal incentives.

I propose to exempt income of unit trusts and other collective investment schemes from Withholding Tax, where income is distributed to unit trust holders. The purpose of this exemption is to encourage savings and investment. The details are contained in the Income Tax (Amendment) Bill 2005.

Excise Duties

127) Mr. Speaker Sir, in order to boost excise revenues, I am making an upward adjustment of duties on some products to provide the revenues needed to fund our Budget.

Petroleum Products

128) The Excise Duty on petrol has been increased from sh660 per litre to sh720, while the Excise Duty on diesel will increase from sh400 to sh450 per litre. The sh200 duty on kerosene remains unchanged. This measure is expected to generate sh28 b revenue.

Mobile Phone Airtime

129) As a revenue enhancing measure, I am increasing the Excise Duty on air time from 10% to 12%. I am projecting to collect sh5.2b from this measure.

Sugar

130) I am introducing a specific Excise Duty rate of sh50 per kilo on imported or locally-produced sugar. This duty will be paid at the time of clearing the importation at customs. For locally-produced sugar, the duty will apply on the ex-factory price. This measure is anticipated to realise sh16b. The details are reflected in the Finance Bill.

Value Added Tax

131) I am increasing the rate of Value Added Tax (VAT) from 17% to 18%. This is expected to generate revenue of sh38.6b.

Traffic Act

132) I am adjusting some fees payable on motor vehicle and motor cycle licences. The fees applicable to buses and lorries will not be affected. This measure is projected to fetch sh10.2b revenue. The details are contained in the Finance Bill.

Tax Administration

133) Mr Speaker Sir, Reforms have been going on in URA to strengthen its performance. These reforms are aimed at mobilising the resources we need. The URA Act is being amended to realign it with the current reforms. Strengthening URA is on top of our agenda and in this regard, sh68b has been allocated to enable URA to meet its mandate.

Local Government Taxation

134) Mr. Speaker, Sir, effective Financial Year 2005/06, I am undertaking a comprehensive tax reform at the local government level to ensure that adequate revenue is realised. The Government has decided to suspend graduated tax with effect from 1st July, 2005. 

East African Community Issues

135) Mr Speaker, Sir, Honourable Members, you are all aware of the Government's policy to promote cooperation to achieve regional economic cooperation and integration. Only by integrating our regional economies shall we be more viable and competitive in the world trade. The Government will continue to pursue and promote regional economic cooperation and integration through joint action with other regional partners.

136)  During the pre-Budget consultations, the ministers of finance met in Arusha and reviewed the implementation of the Customs Union's Common External Tariff       (CET). Accordingly, a   number of changes to the Common External Tariff have been proposed at the community level, but I will single out the most outstanding.

Pharmaceutical Products

137) There has been a concern that the imposition of a tariff on medicine, albeit the need to promote the local pharmaceutical industry, was leading to price escalation and thus undermining access to essential drugs in the community. The duty rate on medication is abolished.

Solar Equipment and Accessories

138) In recognition of the need to develop alternative sources of energy as part of the efforts to modernise our society,  solar equipment and parts do not attract duty in the CET. In this regard, duty on deep cycle batteries has been remitted to 0%.

Paper for Printing Textbooks, Examination Papers and Covers

1390 For purposes of enhancing literacy programmes in the community, paper for printing textbooks, examination papers and covers is remitted to 0%.

Speed Governors

140) To augment the campaign to reduce carnage on the roads, the duty on speed governors is remitted to 0%.

Worn (second-hand) Clothes

141) Mr. Speaker Sir, the East African Customs Union CET rate on second-hand clothes is being reduced from 70% or US 0.5 cents to 40% or US 0.3 cents per kilogramme.

142) Mr. Speaker Sir, I would like to emphasise that the coming into force of the East African Customs Union has set in a new era in the management of our trade policy. All matters relating to rates of Import Duty and exemptions are dealt with at the EAC through the established organs so partner states no longer have the liberty to take unilateral decisions.

143) Mr. Speaker Sir, I wish to report that we have held discussions with our counterparts in Kenya regarding Uganda's cargo at Mombasa. The main concern has been the delays, customs warehouse rental fees and port storage charges, that have affected the smooth flow of our cargo.

Mr. Speaker Sir, the Kenyan authorities have agreed in principle to consider waiving these charges. They have also indicated that in principle, they have no objection to Uganda developing its own holding facilities at Mombasa Port. The Government is, therefore, taking this matter forward.

144) Mr. Speaker Sir, and Honourable Members, it is important to hold on to the current tax base. Any concessions will put downward pressures on revenues yet there are no alternatives tax handles to recoup any losses from such concessions in the medium- term.

The consequence is that to sustain revenue performance in the medium-term to finance-raising expenditure needs, the only means available is to improve collection efficiency.

This underlines the need for continued further improvements in tax administration capacity and discipline in URA, to reduce corrupt practices causing substantial revenue losses.

145)Mr. Speaker Sir, all these measures announced will take effect from July 1, 2005 with the exception of Excise Duty on fuel products which take effect from June 9, 2005.

Tax Expenditures

146) Mr. Speaker Sir, Article 152 Clause (2) of the Constitution obliges me to report to Parliament periodically on the exercise of powers conferred upon, me by any law to waive or vary a tax imposed by that law. I wish to report that from July 1, 2004 to date, I have not exercised powers conferred by any law to waive or vary a tax.

Conclusion

147) Mr Speaker Sir, I wish to extend my gratitude to all stakeholders whose efforts sustained the long and arduous process of preparing this budget.

148) In this Budget, Mr. Speaker Sir, we have committed ourselves to the strategy of growth and development. We have committed ourselves to savings and investments throughout the land.

We have committed ourselves to improvements in the wellbeing of the rural majority by increasing money for clean water, water for production, agriculture, micro-finance, employment and community mobilisation and organisation.

We have committed ourselves to national transformation through the Government's revolutionary support for universal education and the war on HIV/AIDS and other diseases.

149) Mr Speaker, Uganda's dependence must diminish. The spirit of the Martyrs and the Heroes of our country is undoubtedly the spirit of self-sacrifice, self-denial, patriotism, courage and freedom.

150) The dividends of free cooperation, free enterprise, hard work and good governance are absolutely enormous and can catapult us into an advanced nation in the foreseeable future.

Mr. Speaker Sir, my secondary school teacher, Mr. Buregyeya, once told me the following quotation he attributed to British Prime Minister Sir Winston Churchill's address to the people during the 2nd World War: "Our problems are enormous and so are our resources."

151) Mr Speaker Sir, the vision of the Movement incorporated in this Budget, the vision of a transformed people united in peace and prosperity is enormous but so, Mr Speaker, I believe, are the resources of Uganda's present-day Martyrs and Heroes.

Mr. Speaker Sir, I beg to move.

FOR GOD AND MY COUNTRY