Prof. P.S. Mulema delivers 1986/87 budget speech

The NRC hears a dramatic new programme for the economy founded on discipline and a new exchange rate.

Following is the full text of the 1986/87 budget speech delivered by Prof. P.S. Mulema at Parliament Building in Kampala over the weekend:

Domestic Production

"The economy of Uganda has been troubled for the last 15 years by economic mis¬management. During the 1970s, it was not even possible to assess the extent of this mismanagement in statistical terms because the entire administrative system had almost ceased to function.

Even when the Military government was overthrown in 1979, the economy could not recover because of the in¬security that prevailed, misallocation of national resources and lack of guidance and direction.

Between 1972 and 1979, the economic condi¬tions forced Ugandans to move from production to commerce and services, where these were possible.

During this period, there¬fore, little production for ex¬port took place although pro¬duction of coffee continued somewhat because of the nature of the crop while other exports like cotton suf¬fered from substitution effect when people switched to production of locally consumed commodities whose prices rose steadily in response to the declining value of the shilling.

This low level of pro¬duction both in agriculture and industry was reflected in the trends of Gross Domestic Product. 

It was, however, not possible to get reliable statistics. Such figures as we now have are rough estimates based on the few statistics available and lots of assump¬tions

Between 1978 and I960, was a further marked drop in Gross Domestic Products as a result of the war that was taking place then and although Gross Domestic Product recovered somewhat between 1980 and 1983, most of that recovery was accounted for by in¬creases in commerce and government services since even during that time, production remained very low.

Rough estimates indicate that real Gross Domestic Pro¬duct declined by 14 per cent between 1978 and 1980 and while there was a re-cowry of about 17 per cent between 1980 and 1983, Gross Domestic Product further declined by 10 per cent between 1984 and 1985.

During 1985, it is estimated that the Gross Domestic Product fell by 5.5 per cent. The monetary economy showed a decline of 3.9 per cent during the same period while non-monetary could have declined by up to 8 per cent.

It is not possible to get accurate figures for the non-monetary economy in the absence of detailed statistics. 

The de¬cline in this sector could have been moderate or sub¬stantial but it can be assumed that as a result of massive smuggling that was going on along the borders, the de¬cline in production in the peasant economy could have been more apparent than real.

Government is making arrangements to have a crop census followed up with regular periodic reports compiled from down at the parish level to ensure better planning and forecasting in future.

Because of political instability and the security which existed in 1985, it can reasonably be assumed that the output in both agriculture and manufacturing industries, where these are in operation, was not substantial. Certainly, in the industrial sector, the industries did not only lack funds to purchase raw materials and capital inputs, but lacked working capital as well.


Prices and Monetary Developments

There have been very high increases in prices in this country between 1980 and now. The reasons can be analysed in terms of supply and -demand. On the supply side, the economy has faced problems in terms of the distribution of food and the production of manufactured items.

Although Uganda has the capacity to produce large quantities of commodities for export, we have continued to face transport bottle-necks and absence of appropriate marketing arrangements.

In the past fifteen years, the problems have been aggravated by conditions of insecurity mainly created by the behaviour of governments in power themselves. This made it difficult for food which could be produced in large quantities to reach the markets. 

In the industrial sector, the production of goods was always too small to meet domestic demand.  The reasons for this are clear. The industries were poorly managed, lacked working capital, and could not get sufficient foreign exchange for raw materials, inputs and spare parts. 

The situation was made worse by the financial programme approved by the Obote government and supported by the International Monetary Fund. 


That programme was principally aimed at management of demand without doing much about supply. The industrial sector, therefore, either stagnated or some industries simply stopped operations because currency devaluation which was the principal monetary instrument in this programme made it possible for industries to operate since the cost of imported raw materials and spare parts progressively increased without corresponding increases in these industries' working it capital. 

While the financial programme adopted concentrated on imports and consumption, this did not substantially affect the internal price levels because considerable quantities of the consumer goods imported were either smuggled out of the country or foreign currency approved, for such goods was diverted to other purposes abroad.

The result was that consumer goods such as shoes, bedsheets, blankets,    clothes, sugar, soap, and others remained in short supply and therefore, attracted very high prices.

On the other hand, the financial programme failed even in this respect,    not-withstanding its main pre-occupation with demand management. The governments were not particularly disciplined and therefore expansion in money supply to finance unplanned and in many cases irregular government spending.   

The government deficit, therefore, continued to widen and the resultant inflation was particularly damaging to the economy especially as it was financed by borrowing from- the banking system and the Bank of Uganda in particular. In addition to growing government deficits to finance consumption and services, a large proportion of bank credit went to finance commercial activity and speculation. Even where production was possible, credit to finance it was not available in banks because there were more profitable ventures in commerce and speculation for banks to finance.

The financial institutions, therefore, ignored agriculture and industry because it did not pay as well. This government is determined to reverse the trend.

Some of the measures that have already been taken to correct this unhealthy situation include the recent setting up of the Rehabilitation of Productive Enterprises Programme which, with supporting foreign resources supplied by the United States government, will especially finance agriculture and agro-related industries. Before the end of the year, another organisation to be known as the Uganda Agricultural Finance Agency

(UAFA) will be set up with the single objective of financing agriculture.    

Government is also seriously considering increasing the capital of Uganda Development Bank which is the national institution best suited to the financing needs of the industry.

In the monetary field, domestic credit increased sharply between 1980 and

1985. The acceleration declined somewhat between 1982 and 1984; but during the year 1984/85, total domestic credit increased 130 per cent from Shs 85 billion to Shs 195.2 billion. 

This went hand in hand with government indebtedness to the banking system. Net claims on government increased 65 per cent between 1983 and 1984 from Shs 40.5 billion to Shs 66.9 billion and increased further to Shs 108.8 billion by the end of 1985.

This increase largely reflected government dependence on bank financing to cover the widening budgetary deficit: Bank credit to the private sector was also increasing during the same period but at a lower rate of growth, although this credit to the private sector went mainly to finance commerce. 

Money defined as currency in circulation and bank deposits increased by 90 per cent over the year 1985 from Shs 1115 billion to Shs 211.3 billion while currency in circulation alone nearly doubled during the same period from Shs 43.9 billion to Shs 80.7 billion. 

This large increase in currency in circulation naturally put a lot of pressure on prices as these large increases were taking place during a period of low and declining production. Bank credit was also distributed in a manner that reflected the usual effects of inflation in an economy. In agriculture, for instance, bank lending stood at Shs 35.3 billion by the middle of 1985 and rose to Shs 48.1 billion by the end of the year. 

These fairly large increases in the agricultural area are largely explained by financing export crops and, in particular, coffee. Commercial Bank credit to agriculture for purposes of production remained virtually non-existent.

In a situation of inflation, the attitude of commercial banks can be justified on purely financial grounds. It was more rational for banks to finance sectors where credit was relatively more secure and where it could be recovered in a short period. These were mainly commercial and services ventures. 

The manufacturing sector received very little credit from banks especially as most of the industries were bogged down with legal problems stemming from ownership and other problems. Frequent evaluation of the shilling did not help either. 


Monetary Policy 

The policy employed by the previous governments while aimed at establishing a relatively more acceptable exchange rate tor 'he shilling, had the effect of undermining this very policy. The exchange rate policy was used by the previous governments as an instrument to help in the management of demand. 

The idea was to devalue the shilling and thus make the foreign currency more expensive in terms of Uganda shilling and, therefore, reduce the demand for it.

Management of demand can only succeed if first, there is discipline in how money is spent; not just in government, but also in those institutions which are charged with the management of financial resources, and where there is a mechanism for channelling resources into productive areas of the economy. 

What went wrong in Uganda was that budgetary discipline was lacking and those who advocated the monetary approach to the management of the economy depended on the market mechanism to orient the economy towards more production and less consumption.

That, of course, could not happen because of the internal contradictions inherent in the policy.

The government intends to maintain a fixed exchange rate in order to minimise inflation but will also take other measures that will help the economy to recover stably without high rates of inflation. The government has, therefore, decided that the exchange rate be fixed at shs.1400 per US dollar. With immediate effect, the dual exchange rate regime is abolished. 

Interest rates, of course, do play a monetary role as they do regulate the cost and availability of credit and where it goes. They also can help in mobilising financial resources which could be used to achieve desired economic objectives. In a situation of inflation, however, interest rates need to be substantially high in order to attract people to save and also discourage some from speculation through reluctance to hold money or through hoarding and property dealings.

High rates of interest, however, can have very damaging effects on an economy. They could discourage borrowing and in a situation like ours, may have the effect of curtailing production since production forces the investors to tie money in projects for a relatively long period. If the rates of interest are high. Such borrowing may appear, rightly or wrongly, unacceptable to producers. The subject is, therefore, controversial.

It has, therefore, been decided that as soon as the national investment plan is approved and, therefore, the desired levels of investment in the various sectors are established, interest rates policy will be reviewed.

Financial institutions will be required to adjust their investment portfolios and ensure that predetermined proportions of their lending go to each sector of the economy. At that juncture it will be possible to reduce interest rates applicable to productive sectors without at the same time, discouraging lending institutions from lending to these low-interest sectors.

The most significant development in the area of monetary policy to be undertaken during the current fiscal year is the currency reform which I announced earlier this year. New currency notes are already being manufactured by our security printers.

The minting of new coins is also in progress; for we shall definitely go back to the use of cents and shillings coins as valuable media of exchange. The production of high-security currency takes a longer time than most people appear to realise. It is only this factor that is delaying the exercise.

Trade and Balance of Payments

The economic mismanagement of this country has experienced in the past has had the effect of narrowing our export base so much that at present, the only export we can seriously talk about is coffee.

The country would probably have no export at the moment if coffee were not the type of crop can survive long periods of neglect.

Even then, the volume of coffee exports has been declining in the last ten years. While other export crops like cotton and tea already show promising signs of recovery, the country will not expect substantial earnings from these crops this year.

Coffee exports amounted to 143, 000 tonnes in1979 and declined to a level of 133,000 tonnes in 1984 and increased again somewhat to    151,500 tonnes in 1985.

The decline in coffee production may, however, not reflect the true situation. A lot of Uganda coffee has systematically been smuggled out of the country by both individuals and, it would appear, official agencies.

Cotton, tea and tobacco continue to be exported but in quantities that do not demand any particular mention here.

In 1982, however, maize appeared for the first time as one of Uganda's exports which reached a level of 30,000 tonnes in 1983 and declined substantially in 1985 to a level of 9,800 tonnes. 

Unit prices of our exports continued to fluctuate from time to time in response to forces beyond the control of the developing world; although international agreements under the International Coffee Organisation have helped a great deal in bringing about relative stability in coffee prices on the world market. 

The value of Uganda's total exports reached a level of US $380 million in 1985. Nearly all these consist of earnings from coffee. 

Uganda's imports in 1983, 1984 and 1985 were valued at the US $428 million, US $342 and the US $264 million respectively. This drop reflected the country's growing inability to raise enough currency to finance imports as well as political difficulties which existed during 1985. 

Drawings from IMF were getting exhausted by 1984 and because the financial programme with the Fund was not renewed, Uganda's capacity to import was severely constrained. 

The country experienced substantial trade deficits between 1980 and 1982 although, by 1985, we had recorded a surplus in the trade balance largely because imports had been disrupted by political and military problems the country was experiencing. 

On the capital account, Uganda utilised substantial capital and by 1983, we had recorded a substantial surplus of US $27 million. 

This improvement reflected substantial use of borrowed resources particularly from the IMF. Uganda, therefore, had relied largely on external financing to finance imports. However, repurchases from the IMF, that is to say, repayment of our debt, was already in excess of our drawings from the Fund by up to the US $10 million by 1984, thus marking the beginning of the balance of payments difficulties which the country faces at the present time. 

The international economic scene 

On the international scene, Uganda has, like other countries, witnessed recent sharp decreases in oil prices. This decline could have benefited the developing countries greatly. However, we do not control the oil market and have to rely on the operations of the commercial organisations which market that oil worldwide.

Uganda has yet to get the full benefit of low oil prices. While the effect of cheaper oil is expected to be positive and lead to higher rates of growth in the developed countries, this cannot necessarily be said of developing nations.

The developing world is constantly faced with two major problems. The first is the currency fluctuations which frequently affect the balance of payments positions and the second is fluctuations in prices of their exports.

In regard to this latter problem, it is noteworthy that over the last few months, the price of coffee on the world markets has dropped by as much as a dollar per kilogramme.

This has considerably depressed our foreign earnings. Furthermore, the developing world, including Uganda continues to be a net exporter of capital to the developed world. This phenomenon continues even at this time.

These flows consist of the transfer of capital by commercial undertakings and investors who operate in the developing world, as well as flows on account of principal and interest on various credits raised in the developed countries.  

Producer prices for controlled commodities

In May, this year, the government announced substantial increases in the prices paid to farmers for controlled export crops. It is the policy of this government to offer higher and higher prices for these commodities as a means of providing an incentive for greater production, as well as redressing the imbalance between the rural and the urban sectors of the economy.

However, because of the current condition in the international commodity markets, it is impossible for the government to review, upwards the prices currently payable to producers. As suggested above with regards to world prices for coffee, the government is only making an effort to maintain prices to the farmer at the level at which they are now.    Price increases are,   therefore,   impossible in the circumstances.

However, the government will continue the policy of offering the best possible prices in light of world market conditions. The price for cotton, in particular, will be reviewed before the commencement of the coming season. 

Development programme

The government is in the process of formulating an Investment Programme which will reflect the economic policies of the NRM government.

The programme will not only focus its main attention on production, but it will also put emphasis on developing an integrated economy so that the economy is oriented to produce, as much as possible, those commodities, goods or equipment that will enable productive sectors, especially industry and agriculture, to support each other

When industries begin to operate at higher capacities, Uganda should produce more of its basic needs within the country.


The investment programme is in the final stage of discussion and when it is published, it will indicate broadly what Ugandans plan to do for themselves and the nature of assistance they expect from financial organisations and friendly countries.

This Budget cannot, of course, take into account the full and final recommendations of the investment programme although, during this financial year, certain projects in the programme may be started.

This will include the rehabilitation of our roads as well as some industrial projects which the government considers to be urgently required.

Even before the investment plan is released,   the government is already implementing those policies that are fundamental to its economic policy. Uganda intends to depend on its own resources as much as possible in developing its economy. In   this   connection, we    will    primarily use our foreign currency to:

(a) pay for petroleum products as well as drugs, both human and animals;

(b) purchase raw materials and capital inputs to produce those consumer goods which the people need as well as agricultural inputs to promote more production for local consumption and export.

 (c)  purchase capital goods and   transport equipment   the country cannot at the moment produce; and, 

(d) pay for consumer goods which our industries could produce but cannot now due to mismanagement and neglect.

(e) pay for scholastic materials needed in our educational institutions; and,

(f) repay the country's external debts most which could have been avoided.


The government has also embarked on measures which are aimed at reducing demands on our foreign exchange resources. We have already reached agreements with a number of countries under which we will exchange commodities or goods with each other so that the need for use of convertible currencies is reduced.

In this regard, the government is launching an export drive involving non-traditional exports such as maize, beans, timber, hides and skins, simsim and soya beans. Government calls upon all persons to re-double their efforts in the production of these commodities and guarantees a sure market to the producers at competitive prices.


In addition, the government intends to restrict external borrowing to the financing of development projects where the capital investment is such that we cannot finance them from our own resources

Foreign investment

The investment programme will make allowances for and encourage investment by investors abroad. A law exists to protect such investment as well as give incentives to those who wish to invest in Uganda. The Foreign Investment Protection Act, 1964 and the subsequent Decree of 1977, give details of what the investors need to do before they start on their projects in Uganda.

That law provides for a committee of senior officers who are supposed to examine the nature of the proposed investment and determine whether it is in line with the country's development objectives.

If the committee is satisfied, it makes a recommendation to the Minister of Finance who signs a Certificate of Approved Status thus allowing the investor the right to remit dividends and interest on any money he might have borrowed from abroad to finance the project in the country.

It should be emphasized, however, that each project has to be discussed with the government on a case by case basis to ensure that its future operations are in line with the Government's economic objectives and will produce those goods or services the country considers a priority.


Departed Asians Property Custodian Board

The government has already started on work relating to the final resolution of issues relating to properties left behind by departed Asians. We are at the moment examining the law governing their sale or return to the former owners as it stands. Amendments to the law may be necessary.

New legislation may also be necessary, say with regards to land tenure, to provide for certain modes of sale and ownership that cannot be accommodated m the existing law. A task force consisting of lawyers, experts on urban affairs, bankers and others, is currently examining the necessary procedures and modalities to be followed.

Their recommendations will be submitted to the government for a final decision. After this process, properties, as shall be a candidate for sale, shall be valued and disposed of. Recommendations are also expected from the task force on the best ways of deploying and utilising the proceeds from these sales.

1985/86 budgetary Out-turn

The budgetary situation during the year 1985/86 was abnormally difficult. The budgetary performance was more absurd than ever before.

The original estimates for recurrent expenditure for the financial year 1985/86 were Shs. 213.0 billion while development expenditure was estimated at Shs; 144.6 billion In the course of the year, these figures were revised by supplementary estimates to Shs 343.7 billion Shs. 170.6 billion for recurrent and development expenditure, respectively giving a total expenditure of Shs. 514.3 billion

On the revenue side, the original estimates for .the financial year 1985/86 were Shs. 240.8 billion for the recurrent tax revenue and Shs. 73.1 billion for development revenue in that order.

The revised tax revenue estimates for the year are Shs. 276.6 billion and Shs. 125.8 billion for recurrent and development, respectively, making a total of Shs. 402.5 billion as against the original estimates of Shs. 314.0 billion.

The out-turn for 1985/86 Budget, therefore, gives an overall deficit of Shs. 104.6 billion.

Many factors made it very difficult, in some cases impossible, to live within the original budgeted amounts and consequently necessitated revision of expenditure estimates by supplementary provisions. The main factors were:

First, government services which were not originally catered for in the Budget namely:

— provision of emergency relief for the people in the war-ravaged areas especially Luwero Triangle, Arua, Moyo Moroto and Kotido.

- implementation of government policy to provide free education in the Luwero Triangle, Arua, Moyo and the two districts of Karamoja. Second, increased salaries and wages due to either: underestimation of Police and Prison requirements in the original Budget; or

— increase   in   the   number of   soldiers   in the Ministry   of Defence    in    the   course    of the    year    and    an    upward revision of their salaries in the second half of the year; and

— in addition, the government had to acquire new equipment and transport facilities for the Army, i.e. uniforms mattresses, vehicles, etc.

Third, the continued depreciation of the Shilling which affected a number of payments made in foreign currency, e.g. external loan servicing, remittance to our missions abroad, students' allowances overseas, overseas purchases and contributions to international organisations as well as travel abroad. Fourth, internally, the cost of maintenance and feeding.

(a) soldiers and Police and Prisons personnel as well as inmates;

(b) students in secondary schools,   colleges and   Makerere University; and

(c) hospital patients and paramedics constantly increased.

Fifth, the rate of revenue collection .was far less than the rate of expenditure as indicated by expenditure demand of ministries and departments.

Details of the out-turn of 1985/86 tax and development revenues and external grants and loans are in the Financial Statements and Revenue Estimates published today.

1986/87 budget forecast

The main policy objective of the 1985/86 "Budget will focus on financing and re-habilitating government services that have been neglected as far as recurrent Budget is concerned, and repair of many state assets that have been damaged during the recent wars.

These include buildings in government institutions, schools, hospitals, roads, machinery, etc., as regards development budget. The Budget will also lay emphasis on providing means of livelihood to the population in the war affected areas under the Ministry of Rehabilitation.

In the 1986/87 Budget, the overall revenue including foreign grants, among others, are forecast to increase by about 90 per cent whereas the overall expenditure is expected to increase by about 119 per cent

The total estimates of revenue published today in the Financial Statement is Shs 777.8 billion:

— tax revenue is estimated at Shs 487.3 billion;

— appropriation-in-aid is estimated at Shs   16.8 billion.

Development revenue is expected to be Shs 273.7 billion from the following sources

(a) dividends from  government-owned     companies     or companies   in   which   government has shares-Shs 4.1 billion,

(b) IDA I and II and other Projects     Accounts — which should      realise     Shs      56.5 billion;

(c) Kenya     Compensation Fund   expected   to   contribute Shs 40.6 billion;

(d) sale of buses - proceeds   should    bring   Shs   4.4billion;

(e) external grant - estimated    to    bring    Shs    72.3billion and

(f)    external loans — proceeds should bring Shs 95.8 billion. 

The total   estimates of expenditure are budgeted as Shs 1,127.5 billion

— Recurrent expenditure is estimated at Shs. 509 billion.

— Statutory recurrent is budgeted at Shs. 134.0 billion 

— Development expenditure is estimated at   Shs. 474.1

billion

— Statutory development is estimated at Shs. 9.8   billion


The total revenue and the total expenditure give a deficit of Shs. 349.7 billion. This is to be financed from borrowing from the banking system and also from non-bank sources. Subject to the government decision, part of the proceeds from the sale of Custodian Board properties may be applied to the financing of this deficit.

Most of the parastatal bodies continue to depend on government assistance for their operations. Government's proposed contribution to various parastatal bodies amounting to Shs 22.7 billion is included under the Ministry of Finance Development Budget out of this amount, Shs 7.0 billion is to cater for partial capitalisation of the Uganda Airlines while Shs 9.5 billion goes towards UDC's share capital.

This government places a lot of emphasis on discipline within government and the way public funds are handled. This emphasis is necessary because rehabilitation needs in this country at the moment, are pressing many. That is the reason why the Budget deficit is so large. The Treasury will, therefore, place strict controls on the use of funds by:

(a) releasing the money to ministries for only real needs which should         be properly documented,

(b) reducing the number and size of government delegations travelling abroad and in many cases,   request   our  embassies abroad    to    attend    meetings where Uganda  will be required   without  sending   officers      from     Kampala;

(c) insisting on proper authority before purchases can be financed   with   public   funds;

(d) ensuring that each ministry spends money in amounts not exceeding those provided in the Budget to be authorised today.

As a result of high rates of inflation over the last ten years, real wages and salaries are at the moment very low indeed. At the lowest level, the monthly wage is no even enough to buy a bunch of matoke or five kilogrammes of maize flour.

The government has, therefore, decided to increase the total wages bill of government by 50 per cent and provide for this increase in individual scales in such a way that the 50 per cent increase in total wages and salaries will range from token increases at the top scale to more than 50 per cent increase at the bottom scale.

This will, of course, not bring significant relief to the workers as the prices will dill be high for all of them. The government, however, intends to take further measures in the near future to bring about a happier balance between goods and services on the market and aggregate demand.

More meaningful salary increases will only be possible when our production levels and the tax base expand, and when the government has trimmed down the establishment where excessive staffing exists.

Taxation proposals

I now wish to turn to the taxation proposals. These proposals have the following objectives:

(i)    guaranteeing   a   constant, continuous and adequate flow of revenue in the prevailing circumstances; 

(ii)     stimulating production. 

The above objectives will be achieved through the following measures: (a) revision of the various, tax rates in order to bring them in line with the present rate of inflation. Some of these rates have been revised for over a decade now and are meaningless compared to the cost and importance of the services they are purportedly paid for;

(b) increasing the vigilance, surveillance and therefore effectiveness    of    the    tax    administrators;

(c) a liberal application of fiscal policy to ensure the flow of inputs in both the agricultural and industrial sectors at relatively low prices.

These measures will form the basis for long-term tax policy objectives.

Income tax

The Finance Act, 1982, changed the Appellate system by replacing the local committees and the tribunal with the Commissioner for Appeals. But since then, it has not been possible to establish the new system, the reason being the difficulty of identifying a person conversant with this new system.

In the meantime, however, objections have been piling up thus holding up the tax that should have been collected. I should, on the other hand, emphasize that an appellate system is an integral part of effective tax administration and is instrumental in promoting compliance. Consequently, to save time and to speed up resolution of disputes and therefore realise the revenue, I .propose to revert to the old system of the local committees and also do away with the tribunal.

In a free enterprise society, it is the business sector which determines the level of investment. Increasing the rate of investment is important for capital formation and therefore, the rate of economic growth. To be able to increase savings and therefore the rate of investment, I propose to reduce the rate of corporation tax applicable to industry and agriculture from 50 per cent to 40 per cent.

However, in order for a business to make an adequate .contribution to the reconstruction effort, I propose to raise the corporation tax applicable to commercial banks arid other financial institutions other than insurance companies from the present level of 50 per cent to 60 per cent.

The rate for insurance companies will remain at the current level. I also propose to raise all other corporation tax outside industry and agriculture to 60 per cent.

Presumptive Income Tax Assessment, popularly known as Income Tax Deposits, was introduced in 1976. Since then, it has been extended to various economic activities with a view to tapping all sources of incomes.

 In its current circumstances, the Department of Income Tax is thin on the ground and constrained by transport and therefore unable to effectively reach every potential tax-payer.

Therefore, as recommended in the Uganda Economy Study Report, in the near future, we shall have to depend increasingly on presumptive assessments to collect the revenue. In order to increase the contribution of Income Tax to total revenue, I propose to double the current deposit rates applicable to commercial activity and adjust others appropriately.

The details will be found in the Finance Decree. As a result of this measure, I expect to realise Shs 15.0 billion.

In the Budget Speech last year, a new incentive scheme for commercial banks intended to encourage them to spread banking facilities to the rural areas was announced, i.e. if any commercial bank opened:

(i) one branch, it would be entitled to a reduction in income tax- of 30 per cent; 

(ii) if two branches - 60 per cent;

(iii) if three branches - 100 per cent.

It is now felt that this was too generous and commercial banks could use the scheme to continuously avoid payment of Income Tax. Starting with the year of income 1987, this rebate will be discontinued. In the present financial circumstances, alternative measures will be taken to ensure the expansion of bank networks.

These measures will become effective on January 1, 1987.

Customs Duty

The only substantive amendment is in respect of section 117A (2) of the East African Customs Transfer Management Act In order to discourage the public to hold on to government revenue, I propose that the interest rate payable on any outstanding tax be the ruling commercial bank lending rate, applicable to commerce.

But in the course of administering the Customs law, certain measures were adopted administratively. One such measure is the requirement for pre-payment of taxes on imports. I have carefully assessed the effect of pre-payment on our imports and their prices and decided to do away with this requirement immediately.

It has already been announced, import duty rates for petroleum products have gone up to:

- Super - 100 per cent;

- Regular - 100 per cent;

- Kerosene - 50 per cent;   and the rate on diesel is 20 per cent

These and the proposed sales tax rates result in   the following pump prices: 

-Super-Shs.1.100   per   litre;

-Regular - Shs.1, 000 per litre;

-Kerosene - Shs.750 per litre; and

-Diesel - Shs. 500 per litre.

In the case of beer, the import duty has gone up to 200 per cent.

The NRM government has demonstrated serious concern for the welfare of the people by ensuring that the little that there is, is shared equitably In this case, the government can proudly state that with the assistance of the Resistance Committees, sugar has reached every household at a manageable price.

But the government is battling with the problem of ensuring the supply of essential commodities at reasonable prices on the one hand, and the need to generate additional revenue in order to continue rendering services to the country, on the other

In order to generate additional revenue, I propose to raise the Import Duty and Sales Tax on sugar to 30 per cent and 40 per cent respectively As a result of this proposal, the retail price for sugar will be about Shs. 1,600 per kilogramme

In addition, there are technical amendments which will: 

(i) incorporate PTA rates in our Customs Tariff; 

(ii) streamline the tariffs in respect of motor vehicles to, accommodate four-wheel drive vehicles, special liquid transport vehicles and dumpers;

(iii) streamline tariff rates where finished products are tax-free and yet inputs to manufacture them locally are taxable or where both the components and the finished goods are liable to the same rate of duty.

As a result of these measures, I expect to raise Shs 37.0 billion.

Sales Tax

With effect from midnight tonight, the following rates of sales tax will apply.

1. Beer - 30 per cent.

2. Cigarettes:

  (i)Kali--20 per cent 

          (ii) Others - 30 per cent.

3. Petroleum products:

         (a)Super   and    Regular - 50 per cent;

         (b)Kerosene - 30 per cert.

Other technical amendments will be found in the finance Decree.

As a result of these measures, I estimate to raise Shs.54.4 billion.


Excise Duty

The following rates will be applicable from midnight tonight:

(i)    Beer-50 per cent; 

(ii)     Cigarettes:

(a)Kali - 40 per cent:

(b)Others - 60 per cent.

Since 1981/82, Excise Duty on sugar has been suspended because there was no local production. I intend to continue with the suspension until local production starts. But I propose to re-impose excise duty at the rate of 30 per cent on Uganda Waragi. I expect to raise Shs. 29.0 billion from these measures.


Licences

The present level of Fees and Licences charged under the Traffic and Road Safety Act, 1970, neither reflects the cost of administration nor the importance of the service paid for.

I have, therefore, decided to substantially increase them so as to fully reflect these two.

The details of the increases will be found in the Finance Decree.

As a result of this measure, I hope to real.se Shs. 7.0 billion including Sir- 1.2 billion from the commission on Import Licences hitherto collected by the Advisory Board of Trade. This measure takes immediate effect.

Stamp Duty

The stamp duty rates were last revised in 1967. The developments in the economy since then have rendered them worthless. Yet the instruments for which Stamp Duty is paid are important to offer or guarantee legal security or protection. To bring these rates up to date, I have decided as follows:

(1) Where value   can   be ascertained,   the   rate   will   be 5 per    cent of the value of the   instrument   in   respect of which stamp duty is levied

(2) Where this is not possible as in the case of an affidavit, the present rate will be increased 300   times in partial reflection of the decline in the value of the shilling since then.

This measure again takes effect immediately.

Airport Tax

With immediate effect. I propose to raise the fee payable by a passenger leaving the country to the US $10 per passenger. This will bring our charge in line with other international airports in the neighbouring countries. Nonresidents will pay in dollars but residents will pay the equivalent in Uganda shillings.

With immediate effect, foreign registered vehicles entering   Uganda will be required to pay the US $150 in hard currency.

I would also like to report that I am contemplating the introduction of a Road User Tax in order to make all road users contribute to the rehabilitation and maintenance of our roads


Besides raising adequate revenue necessary to minimise financing the Budget by re-sorting to Ways and Means Advances from the Bank of Uganda, I intend to use fiscal policy to encourage both investment and production.

The long-term objective of this policy is to build a strong tax base so as to realise more revenue. I shall, therefore, on a selective basis, consider allowing the importation, into Uganda, of industrial and agricultural inputs, tax-free.

The additional taxation measures I have outlined above, are expected to realise additional revenue amounting to Shs. 148.9 billion

Other measures which will come into effect in the course of the fiscal   year are the following:

(i)    Mulago Hospital is to become a self-accounting organisation.  This is intended to speed up disbursements to the hospital as well as payment    to    hospital    suppliers and creditors: 

(ii)    similar arrangements being   worked   out   in respect of Makerere University, 

(iii)  a motor third party insurance law is currently being drafted to protect both road users and motorists; 

(iv) it is proposed to set up a Uganda Re-Insurance Corporation   as   a   vehicle of development financing as well as an organ to assist the financing of Budget deficits;

(v)Ugandans who have legitimately earned income outside the country will in future be allowed to open external accounts in hard currencies. Arrangements are underway in the Bank of Uganda for the    implementation    of    this decision;

(vi) in future, all registered exporters of various commodities will be allowed to open external accounts in which they will be allowed to deposit 20 per cent of their external earnings in hard currencies. Finally; 

(vii) in order to preserve foreign exchange and to reduce over-invoicing, all future cash imports shall be on a C& F basis only. The insurance to cover such imports shall be provided by Uganda   Insurance Companies under the auspices of the National Insurance Corporation.

All these measures are designed to streamline operations of government and make for better management of the economy and the good of its citizens.