Expert expects new budget to increase taxes

Jun 05, 2006

WITH less than two weeks to the reading of the post-election national budget, the business community will be eyeing the new finance minister’s tax policy measures to raise revenue as the Government tries to wean itself of donor dependency.

By Sylvia Juuko

WITH less than two weeks to the reading of the post-election national budget, the business community will be eyeing the new finance minister’s tax policy measures to raise revenue as the Government tries to wean itself of donor dependency.

Tax experts say an increase in the ratio of tax to gross domestic product (GDP) has always been the Government’s goal, but to do this, options available for the minister include collecting more taxes from compliant taxpayers or widening the tax base. Revenue collections to GDP currently stand at 12%.

Government’s domestic revenue required to fund the medium-term expenditure spending target is projected at sh2,578b, according to the national budget framework paper 2006/07.

“If the Government was to go for revenue-increasing tax proposals, the focus will be on Value Added Tax (VAT), excise duties or withholding taxes. It is unlikely that corporation tax and pay as you earn (PAYE) will go up,” Stanley Njoroge, a tax manager at Deloitte, said.

Njoroge said while tax increment cannot be ruled out, the option of Uganda Revenue Authority intensifying tax collections is more likely since increasing taxes seems unfair given the downturn of the economy that has been hit by loadshedding.

“Excise duties are what the Government will most likely increase. It is unlikely that the 12% duty on mobile phones could be increased, but I would expect increases in excise duties on fuel oils, spirits and cigarettes,” he said.

Njoroge projected that local withholding taxes might be increased from 6% with the Government eyeing the rebound in the property market.

“Depending on whether the Government decides to focus on the booming property market, a withholding tax on rent may be imposed,” he said.

Other tax policy measures expected in the new budget include hiking vehicle licences and other fees.

Meanwhile, David Muwanga writes that the Private Sector Foundation (PSFU) has urged the Government to expedite the process of joining the Common Market for Eastern and Southern Africa (COMESA) free trade area.

“Ugandan products are charged higher tariffs and are less competitive compared to exports from countries in the free trade areas,” a report submitted to the finance ministry by PSFU for the financial year 2006/2007 said.

“Because Uganda’s exports are less competitive, it results into loss of trade opportunities particularly to Kenya and Rwanda that are in the COMESA free trade area,” the report said.

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