The Minister of Finance, Dr Crispus Kiyonga last Friday presented the 1987-88 Budget to the National Resistance Council.
The Budget has already been hailed by a cross-section of Ugandans as the best since Independence. Today we publish the full text:
When the National Resistance Movement took over power in January 1986, production in all sectors was very low.
In the areas of agriculture, implements such as hoes, ploughs and tractors were in very short supply.
Chemicals and seeds were not available to the population. The industry was extremely constrained by lack of raw materials and spare parts.
The roads were in a sorry state of disrepair and there were critical transport bottlenecks involving trucks and other equipment.
Some areas in the country particularly the Luwero Triangle and the West Nile Region, once among the richest in the country, were nothing more than wasteland; inhabitants having been either killed or displaced by the repressive regimes that came before us.
This sorry state of affairs was further compounded by the heavy external debt. In 1985, debt servicing consumed 55 per cent of exports and, in 1986, 51 per cent.
On top of this, Mr Chairman, there was a huge money supply in the economy that had been building up since the early 1970s.
In summary, therefore, the NRM Government found the following problems: —
(a) severe shortage of supply of basic necessities like soap, cloth, housing, blankets, sugar and salt;
(b) severe bottlenecks involving:
• shortage of transport;
• badly damaged roads, both trunk and feeder; malfunctioning power and water supply;
• lack of agricultural inputs; -unutilized capacity in the industrial plants;
(c) disruption of life in most parts of the country, leaving behind displaced people, orphans and widows;
(d) high level of insecurity;
e) huge money supply in the economy;
f) high rate of inflation;
(g) very unfavourable balance of payment position.
All this was happening in a country with substantial human and natural resources with a longer dash ample availability of fertile soils and a favourable climate.
Indeed, despite its problems, Uganda has continued to feed its people without significant resource to food aid.
This is the country that once had a diversified export base involving coffee cotton, tea, tobacco and copper but, today, the only export we can talk of is coffee.
In the mid-60s not only did Uganda manufacture most of its basic requirements but had some surplus for export. It is, therefore, saddening to note that today Uganda belongs to the category of the poorest, least-developed countries in Africa.
RECENT TRENDS IN THE ECONOMIC SITUATION
The economy of Uganda has not experienced any growth for many years now. This Gross Domestic Product figures in 1946 prices indicate that between 1983 and 1985 Gross Domestic Product declined at an average rate of 3 per cent per annum.
This decline continued in 1985 even though the decline in this year was somewhat less. In 1986, the decline was further reduced.
However, in 1985 and 1986 the Monetary Gross Domestic Product increased by 2.6 per cent and 0.8 per cent, respectively.
Improvement in 1986 was accounted for by the substantial improvement in transport, electric power, forestry and the fishing industries.
Service sectors, namely, Government, rents and miscellaneous services also showed substantial growth in 1986.
In 1986, however, agriculture and the manufacturing sectors registered declines mainly due to the severe shortage of foreign exchange to import raw materials, spare parts and inputs in agriculture. Monetary agriculture which accounts for about 30 per cent of monetary Gross Domestic Product declined by 9.6 per cent in the same year mainly due to a decline in production of major export crops.
Cotton production, for instance, declined from 16,300 tonnes in 1985 to 4,200 tonnes in 1986 and tobacco production fell from 1,600 tonnes to 900 tonnes. The decline was also experienced in the tea sector between 1985 and 1986.
The developing world of which Uganda is part is constantly faced with a number of major problems in the international economic scene.
The first is the currency fluctuations which frequently affect the balance of payments position. The second factor is that the debt burden of poor countries increases every day.
The third factor is the constant fluctuations in the prices of their exports. In regard to this latter problem, Mr Chairman, it is noteworthy that over the last months, the price of coffee on the world markets has dropped more than one dollar per kilogramme.
This has considerably depressed our foreign earnings. Fourthly, Uganda like all other poor countries spends a large portion of its foreign exchange earnings to import petroleum products.
Mr Chairman, although such a proportion of our export receipts is spent on the importation of petroleum products, we are not protected from the fluctuations of the oil prices on the world market because we have no control over them.
It is against this background that the NRM Government has formulated the recovery programme.
Following the takeover of power in January 1986, the National Resistance Movement immediately formed a broad-based Government and moved swiftly to re-establish law and order all over the country.
The security situation is now very much improved in most parts of the country. In those areas where there are still pockets of trouble, the Government is quickly getting the situation under control.
The Government has now put in place a public investment programme.
This programme contains very few new projects; most funds will be used for rehabilitation or completing on-going projects.
Accordingly, the emphasis is placed on provision for needs of industrial and agricultural rehabilitation; on road rehabilitation; and maintenance; power generation and transmission and the provision of social infrastructure, particularly health services.
The objective of the programme is:-
to achieve rapid overall economic recovery and set a base for sustained economic development.
This will entail increasing the volume of the traditional exports and diversification of the export base;
promotion of efficient import substitution and better utilization of domestic resources.
RECENT ECONOMIC POLICY ANNOUNCEMENT
Consequently on May 15, 1987, Your Excellency, Mr President, you announced a very comprehensive Policy Package.
This involved a change in the relationship between the Uganda shilling from a factor of Uganda shillings 14 to Uganda shillings 60 to the United States dollar.
The producer prices were inert and by a factor of between 3 and 5 times. Prices for petroleum products were more than doubled.
The currency was demonetised by a factor of 100, and to assist in reduction of liquidity a conversion tax of 30 per cent on all cash holdings was applied.
Mr Chairman, the Government is quickly taking steps to build on these positive developments. In the area of transport, a number of trucks, pick-ups and buses have already been imported and many more are on order. Funds to finance reconstruction of the main trunk roads have already been secured. These roads include:-
2. Mityana-Fort Portal.
6. Katonga-Kabale through Masaka and Mbarara.
On top of these, Government has made arrangements for the reopening of feeder roads all over the country.
Following the meetings we attended recently in Paris, Government is now assured of adequate flow of foreign funds to finance key areas in the economy.
The Government and the people of Uganda are grateful to the international community for the support and assistance that they are receiving.
Some industries have already placed orders for urgently required raw materials and fast-moving spare parts. Installation of new machineries in some of the factories is going on.
As the inflow of foreign exchange picks up, more and more of our factories will be availed foreign exchange to enable them utilize their otherwise redundant capacities.
Specific orders have already been placed for inputs in agriculture and animal industries. Consequently, the short supply situation that has been one of the factors responsible for inflation will soon be dealt with decisively. Also following the success of the Paris meetings, we have now rescheduled approximately US $70 million of our foreign debts.
This will mean that these funds will be available to apply to our recovery programme rather than repayment of the debts. Nearly all the projects in the investment plan that are to be implemented this year have received funding. The challenge now before us, Mr. Chairman, is to work harder to absorb the money we have borrowed.
It is to be expected, Mr. Chairman, that the increased producer prices you announced coupled with importation of input goods will give rise to increased production in the economy.
The key utilities of power and water are vigorously being attended to as their recovery is conditional to improvements in the rest of the sectors.
SUPPLY RESOURCE BUDGETING AND MAN-AGEMENT POLICIES
The Government finds it desirable and is committed to pursuing tight fiscal and monetary policies. Specific measures are being undertaken in the tax administration area. These will be outlined later.
On the expenditure side, the close linkage between revenue and expenditure will be adhered to.
This is to ensure that money budgeted for investment projects and maintenance work is available when required. Tight measures to control expenditure are being put into place.
The headcount of civil servants is now complete. This exercise has now defined precisely who should be on the Pay Roll. A lot of unnecessary expenditure will be avoided following the findings of the census.
As you know, Mr. Chairman, a lot of Government revenue is normally collected by Ministries as proceeds for goods or services the Government sells to the public.
The Government does, for instance, sell products raised from its farms all over the country. These may be food items, animals, or any other marketable commodity. Charging people for radio or television announcements is another example of how line Ministries sell services to the public.
This money has up-to-date been collected by the Ministries providing these services or selling the goods. However, the manner in which that money has been handled has left a lot to be desired. I have therefore decided that this money which is popularly known as Appropriations-in-Aid will immediately be paid by the Accounting Officers to the Treasury for credit to the Consolidated Fund.
The current budget has taken into account all financing needs for each Ministry discounting availability of Appropriations-in Aid to the Ministries concerned.
From today, therefore, Appropriations-in-Aid will form part of Government revenue to be disbursed to Ministries through normal budgeting from year to year.
In the area of the parastatal organisations, the Government is to insist on efficiency and positive results. Each parastatal organisation will be expected to pay dividends to the Treasury.
All parastatal organisations will now be required to submit to the Ministry of Finance audited financial statements within six months of the year ended. Failure to conform to these and other stipulations will call for punitive measures.
Mr Chairman, the NRM Government while being committed to a mixed economy is acutely aware of the constraints it faces in resource availability. Accordingly, therefore, the Government has set up a committee to study the parastatal sector.
This will assist the government to decide on what it can at this stage manage to run in terms of financial requirements and management capabilities.
Work is now advanced on the preparation of guidelines to be used to decide what parastatals Government should retain and which ones will either be wound up or sold to the private sector.
It is expected that by the end of the year these guidelines will be complete and operational.
Work is also advanced on the resolution of the Departed Asians' Properties Custodian Board. An activated and strengthened Verification Committee is busy reviewing all claims to the properties.
The register of the properties has recently been updated. A Board of Valuers to value all the affected properties has been appointed and by the end of the year work on selling the properties not successfully claimed will have started.
The money obtained from the sales will be kept in a special account to be used to compensate former owners and/or reinvested in the building of new structures.
The Government, Mr Chairman, is committed to a steady reduction in its net indebtedness to the banking system.
As a start 50 per cent of the money realised from the conversion tax has gone towards retiring part of this public debt.
With these measures in the fiscal areas, therefore, there will be a reduction in credit to the Government and this will make it easier for expansion in credit to the private and parastatal sectors.
THE ROLE OF THE PRIVATE SECTOR IN UGANDA
Mr Chairman, the Government recognises the important role the private sector plays in the economy.
This role is most pronounced first and foremost on the smallholder peasant farms as these are held by individuals.
It is similarly pronounced in industry and in the transport sector. In agriculture, all the coffee exported and consumed at home is produced on peasant plots owned individually.
The production of cotton and tobacco is also carried out on individual peasant plots. In the case of tea, production is by big firms privately owned.
The role of the smallholder in this industry is growing and being encouraged by the Government.
As regards, industry the vast majority of the industrial establishments are in the hands of the private sector, and the Government will continue encouraging the private sector's role in industrial development.
The Industrial Licensing Act is currently under review to enhance investment in industrial production.
Government intends to review all existing laws and decrees which deal with the protection and privileges of foreign investment, with a view to harmonizing the law and consolidating it into one statute. Government recognizes, however, that what is even more important than the legislation is the creation of a conducive environment that will give confidence to all investors.
It is, therefore, our intention to work to create and maintain a congenial climate for investment by both domestic and foreign investors.
FOREIGN EXCHANGE MANAGEMENT POLICY
The new exchange has given rise to adequate price incentives for the production of tradable goods.
After the shortage of foreign exchange is alleviated and the domestic supply situation improves the Government will gradually replace the current administrative system of foreign exchange allocation with an Open General Licensing (OGL) system under which importers will obtain import licences and foreign exchange immediately upon request.
Initially, the coverage of the OGL system will be limited to certain priority industries and to a number of priority items such as agricultural inputs and essential goods. |
Mr Chairman, Government in May changed the exchange rate of the Uganda Shilling vis-à-vis the US $ from 14 shillings to 60 shillings. This exchange rate will continue to be operative.
I am glad to report Mr Chairman that the currency reform inclusive of the tax levy you announced in May this year was successfully and smoothly carried out all over the country in the same month.
This is further testimony to the popularity of the National Resistance Movement; it is proof of the fact that the Government is in full control of the security situation.
Finally, it also proves the correctness of the line that the Government has taken on economic matters.
There is now respect and confidence in the new currency. In recognition of this and your wisdom in having taken this measure, Mr Chairman, the population are referring to the new currency as the "Museveni" dollar.
A recently carried out study by the Bank of Uganda has revealed that the monthly price index is falling.
For the middle-income group, the index in June fell by a factor of 16.3 per cent relative to May while in the low-income group the corresponding fall was 11.3 per cent, giving an average fall in the price index of 13.8 per cent.
The attitude of the population with respect to investment is changing positively.
A lot of investors are now turning away from the negative trend of speculation and are instead taking up investment in productive enterprises.
This is a move in the right direction which the Government predictably knew would result from the Policy Package announced in May this year.
With this in mind, Mr Chairman, I would like now to address the question of interest rates. Interest rates do play a monetary role as they do regulate the cost and availability of credit and where it goes.
They can also help in mobilizing financial resources which can 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.
High rates of interest, however, can have very damaging effects on an economy. They could discourage borrowing and so curtail production.
Given, however, the trends in the economy now, namely falling rates of inflation and the turn towards investment in development projects, I have decided to adjust interest rates downwards with immediate effect.
In order to encourage productive investment, medium and long-term loans with maturities exceeding one year will carry interest rates of between 22 and 25 per cent. The exact level will be determined, by the risk factors attached to a particular project. Interest on short-term lending of a commercial nature will be fixed at 30 per cent.
The interest rate on shorter commercial borrowing will be reviewed in line with changes in the inflation rate.
Naturally, the expected increase in investment calls for higher savings. Accordingly, the saving rates have been set at a range of between 18 and 22 per cent, depending on the deposit maturities.
Government is taking further steps to mobilize funds for investment in productive enterprises. Recently we launched a Rural Credit Scheme to be operated by the Uganda Commercial Bank.
In the medium to long term, it is Government policy to spread banking facilities all over the country. Successful efforts have been made to procure finance for the Uganda Development Bank and the East African Development Bank. These funds are being lent to the public for investment in productive enterprises.
I have, therefore, Mr Chairman, not found it necessary to require the commercial banks to adjust their investment portfolios as a way of ensuring that pre-termined proportions of their lending go to each sector of the economy.
The banks will, however, be expected to pay closer attention to investment projects presented to them by the public. In the event that I find this does not work, I will have to take the necessary steps to correct the situation.
TRADE AND BALANCE OF PAYMENTS
Uganda has been experiencing a balance of payments difficulties for many years. The country has experienced a large balance of payments deficits since 1M2. In 1982, the overall balance of payments deficit was US$32.9 million, then the US $36 3 million in 1983 and US $ 58.5 million in 1984.
After 1984 the situation deteriorated sharply mainly for two reasons. The current account balance could not register any marked improvement due to economic conditions which discouraged the country's export trade and secondly, the growing capital account deficit mainly stemming from large debt service payment especially those relating to the International Monetary Fund repurchases.
Over the years 1989 and 1986, the Government imposed sharp cut-backs on imports except those which were absolutely essential for the functioning of the economy but even then, the balance of payment deficit remained extremely adverse.
The Government has taken steps to restore the country's balance of payment position by raising substantial soft-term resources from abroad and also negotiated re-scheduling of the country's external debts as I have pointed out earlier on.
As a result of this, the Government hopes to restore a sustainable balance of payments position in-chiding a strong reserve position by encouraging exports of traditional and non-traditional goods, as well as import substitution.
Mr Chairman, the newly established barter trade in the country will go a long way in assisting this country to diversify its exports. Following your personal efforts, Mr. Chairman, Uganda has recently identified large markets for Uganda's products like timber, soya beans, hides and skins, beans and fresh fruits to mention a few examples.
Two large projects are already being financed by the use of the barter trade, namely the bituminization of the Mityana-Mubende-Fort Portal Road and the rehabilitation of the Kampala International Hotel.
Given, however, the demands for the importation of equipment and spare parts for rehabilitating the industrial sector, the need to import inputs in the agricultural sector and basic necessities for the population, this year will require an exceptional balance of payments support.
But as the economy recovers and the production of goods in the domestic economy improves, a favourable balance of payments should be restored by the end of the current investment programme.
On 15th May 1987, Mr Chairman, you announced huge price increases in the producer prices of the controlled crops.
It is the policy of the NRM Government to offer higher and higher prices for these commodities as a means of uplifting the well-being of this country's producers of wealth.
The prices will be kept under constant review to ensure that the producer is adequately remunerated.
1986/87 BUDGETARY OUT-TURN
Mr Chairman, let me now turn to the Budget out-turn for the fiscal year ended. The original estimates for recurrent expenditure for the financial year 1986/87 was Shs 6.4 billion while development expenditure was estimated at Shs 4.8 billion.
On the revenue side, the original estimates for the expenditure, giving a total expenditure of financial year 1986/87 were Shs.5.0 billion for recurrent tax revenue and Shs. 3.2 for development revenue.
The revised tax revenue estimates for the year under review are Shs 4.8 billion and Shs. 2.4 billion for recurrent and development, respectively, making a total of Shs 7.2 billion as against the original estimates of Shs. 8.2 billion.
The out-turn for 1986/87, therefore, reflects an overall deficit of Shs. 2.8 billion. On the whole, the original voted estimates of expenditure under the recurrent budget were overspent due to the following factors:-
1. The increased salaries and wages announced in the last Budget Speech were not included in amounts voted.
2. The increased out-of-station subsistence allowances were similarly not catered for in the original estimates.
3. The demands for relief and rehabilitation increased during the year beyond expectations. The cost of maintaining security in the country was substantially higher than anticipated.
4. The devaluation of the shilling announced in the Economic Package of May 15, 1987, had a direct bearing on expenditure for the remaining one-and-half months of the financial year both in terms of domestic prices and payments in foreign currency.
BUDGET FORECAST FOR 1987/88
In the current financial year, the Government expects to spend a total of Shs. 53.2 billion. Of this, recurrent expenditure, including statutory expenditure, is estimated to be Shs 26.8 billion. Development expenditure, including statutory development expenditure, is expected to be Shs. 26.4 billion.
With regard to revenue during this financial year, we expect to raise revenue amounting to Shs. 44.6 billion. Of this, tax revenue alone will account for Shs. 27.2 billion.
The other main sources will be grants as well as external loans the country is receiving from abroad over the financial year as well as development revenue consisting mainly of appropriations-in-aid
The Government, therefore, expects to run a deficit of Shs8.6 billion. I intend to finance the deficit by borrowing from the public, from abroad and the domestic banking sector to a limited extent.
Defence takes the biggest share of the budget, both in recurrent and development expenditure. The reason for this is clear to everyone.
The National Resistance Army is still a new army which needs to be fully equipped in order to increase its operational capacity and also to ensure that it will promptly and effectively deal with any future threats to the security of the country.
It is, therefore, necessary to devote relatively more resources in the security area since in any case, no development can take place without secure and suitable conditions.
It has also been found necessary to devote Urge resources in the field of education, especially in recurrent costs. Everybody knows the cost of educating students has been a big burden to the parents over the past years.
The Government is going to meet the biggest part of the cost of maintaining the students at school.
At primary level, Government will pay 50 per cent of the total cost, the corresponding rates at a post-primary level will be 75 per cent and 65 per cent for day and boarding schools respectively and 100 per cent of the costs at the University level.
Parents are, therefore, expected to pay school fees amounting to Shs 95 and Shs 115 per annum per pupil for rural and urban primary schools respectively and Shs 1,580 and Shs 4,387 per year per student for day and boarding secondary schools respectively.
The Ministries of Agriculture, Animal Industry and Works will also take comparatively large fractions of the budget reflecting the emphasis that the NRM Government places on increased production
As contained in the Ten-Point Programme and the Policy Package announced by you Mr Chairman, on May 15, 1987, the NRM recognises the plight in which the civil servant finds himself in the current difficult economic situation. Consequently Mr Chairman, in May you announced a doubling of civil service salaries across the board. This has produced some relief.
Following the decline in prices of most consumer goods consequent on the economic measures announced in May, the civil servants are now in a position to buy something with his salary.
On top of this, because of the improved security situation in the country, the civil servant can now enjoy whatever little he earns in a much better and relaxed atmosphere
As we record further improvements in the economy the civil servant will also be a beneficiary.
Accordingly, the condition of the civil servant will be constantly reviewed as the economic situation improves.
The Government will soon appoint a salary review commission to clearly define what would constitute a reasonable salary for the civil servants. Meantime the Government has decided to take the following measures to ameliorate the conditions of the civil servant: -
(i) The Government will immediately assist the civil servant with transport to and from his place of work. At the district level now or soon there will be a minimum of six vehicles for use by Government official. Although these have been allocated to specific sectors, they will be expected to assist in transporting civil servants from home to office before proceeding to the field.
(ii) In the case of Kampala, a pool of buses will be set up under the Ministry of Transport which will operate for defined distances on main roads leading into Kampala to transport civil servants in the morning and at the end of the day.
(ii) The Government will assist workers in the urban centres to collect foodstuffs from the rural areas by provision of lorries.
In this way, the workers will buy food at much cheaper prices than in the open markets in urban centres.
(iii) The salary and wages for the civil servants will be further adjusted upwards by a factor of 50 per cent effective July 1, 1987.
(iv) The salaries of the professional workers will continue to reflect special allowances which have been paid to them at different scales 01 pay compared with other workers. Doctors and the teaching staff at the University will have their scales enhanced further, considering the special nature of their jobs. The details of this measure will be worked out immediately and also takes effect from July 1, 1987.
(v) Government workers employed in sensitive sections like civil security departments and revenue collecting departments will be paid a responsibility allowance equivalent to 30 per cent of their monthly salaries as long as they continue to be employed in these departments.
Mr Chairman, these measures should go a long way in improving the conditions of the civil servant.
Mr Chairman, the taxation proposals for 1987/88 are aimed at consolidating the economic policy package announced on May 15, 1987.
For the package to succeed, it will need a strong fiscal policy to increase the supply of financial resources.
Mr Chairman, although as of today, our tax base is narrow I find that the revenue potential of this country has not yet been fully tapped In the first place even those tax-payers on the books have not been adequately taxed.
Secondly, some taxable wealth has not been touched, leaving the burden on a few tax-payers, notably the coffee producers.
I will, therefore, be proposing movement into new areas to widen the tax base. In preparation for this, I have already taken measures to strengthen the tax administration system.
(a) the tax collectors are being provided with the required facilities and equipment;
(b) specific incentives will be provided to officials involved in revenue collection;
(c) the investigation function is being reestablished in both the Income Tax and Inland Revenue Departments;
(d) improvement in the quality of staff manning the revenue collecting departments are being carried out;
(e) arrangements are currently underway to appoint a Committee of Experts to comprehensively review the taxation system in this country.
It is against this background, Mr Chairman, that I now wish to present the taxation proposals for 1987/88.
Following the currency reform in May this year, all the figures in the Income Tax Decree, 1974, and subsequent amendments will be converted into new currency The new proposals are as follows: —
(a) I propose to amend the Decree in order to include cattle traders, dairy farmers and commercial ranchers.
(b) It will be necessary for these categories of tax-payers to show that they are up-to-date with their tax affairs as indeed required by the law before they can get access to any Government facilities and services.
For purposes of enforcement, they will need to be properly registered with their respective District Veterinary Officers and District Income Tax Offices.
I propose that cattle traders, commercial ranchers and dairy farmers pay deposits at the rates of Shs 50,000, Shs 25,000 and Shs 6,000, respectively, every fiscal year;
(b) for purposes of equity and the need to promote compliance but at the same time giving realistic relief to tax-payers, I have decided that with effect from 1st July 1987, every person in Uganda, earning more than Shs 50,000 a year, will be liable to Income Tax at the rates in the proposed Individual Tax Rates in the Finance Bill, 1987.
(c) Mr Chairman, ours is a serious Government and its leaders should conduct themselves in an exemplary manner and be ready always to lead in all respects.
We should therefore not only show a good example but should also be able to contribute to the cost of financing services we all enjoy.
I have therefore decided that from 1 July 1987, all the Honourable Members of the National Resistance Council and Ministers will pay Income Tax on their emoluments.
(d) Mr Chairman, a number of corporations have for a long time been exempt from payment of income tax.
The rationale for this initiative was that the organisations were to provide subsidised services. But for many years now these corporations have been charging commercial rates.
The only setback they have had is the failure to collect their dues. For reasons of equity I have accordingly decided that with immediate effect, the following corporation will be brought into the Income Tax bracket: —
1. Uganda Railways Corporation
2. Uganda Airlines Corporation
3. Uganda Posts and Telecommunications Corporation
4. Uganda Commercial Bank
(e) Mr Chairman and Hon. Members of this august House, the Income Tax Department has been levying unrealistically low-income tax deposits.
For example, a fisherman has been paying old Uganda shillings 20,000 for a whole year. Before the currency reform, a small fish was costing Shs 5,000.
In effect, this trader only caught four fish to cover the tax for a whole year!
This is unacceptable and inequitable. I have accordingly decided to raise deposit rates in line with current prices. The new rates which take effect immediately are outlined in the Finance Bill.
f) Mr Chairman, the Fiscal Year is different from the Income Tax Year in that the income Tax Year coincides with the calendar year while the fiscal year does not. I find this irrational from the point of view of resource mobilization.
The effect this has been that revenue expected from income tax sources has not been received until six months after the coming into effect of a given fiscal year.
I have therefore decided that starting with 1987/88, the income Tax Year will coincide.
Mr Chairman, I hope to raise an additional Shs 0.5 billion.
The Economic Package announced on May 15, 1987, has started producing positive results. Government recognises that in the present circumstances the demand for imports will continue to be high because of inadequate supply of goods and services in the economy.
In order to raise adequate revenue from this source while at the same time protecting the average Ugandan from the effect of devaluation, I have decided the following measures: —
i) I have abolished duty payable on the following essential commodities: soap, sugar, salt and kerosene. This measure has been effective since June 25, 1987, when the current prices for these commodities were announced.
ii) With immediate effect,
(a) The duty payable on lorries and buses is reduced to 5 per cent from 15 per cent.
(b) The duty on pick-ups, that is, motor vehicles for the transport of goods or materials of a carrying capacity of fewer than 3 tonnes is reduced from 15 per cent to 10 per cent.
(c) The duty on mini-buses has been reduced from 20 per cent to 10 per cent.
(d) The duty on motor vehicle tyres and tubes is reduced from 20 per cent to 10 per cent.
(e) The duty on motor vehicle spares is reduced from 20 per cent to 10 per cent.
(f) Motor vehicles for the transport of liquids or petroleum products in bulk are reduced from 15 per cent to 10 per cent.
iii) I have already indicated that the success of the current economic policy will depend on the increased supply of goods and services.
In order to stimulate domestic production, I have decided to suspend duty payable on all industrial raw materials in 1987/88. For effective implementation of this measure, I wish to urge all manufacturers in this country to submit lists their raw materials to the Ministry immediately.
The objective of this measure is to speed up the importation of raw materials and with the saving on duty, to enable the industries to import more raw materials and ultimately increase production.
(iv) It is an agreed economic truism Mr Chairman, that the rate of capital formation and therefore economic growth is a function of investment.
In order to attract more investment and therefore stimulate growth, I propose to waive duty on new machinery, plant and equipment imported by industries.
It should be noted, Mr Chairman, that already agricultural inputs, pesticides, and animal drugs, agricultural tractors and hand-tools are tax-free. This position will be maintained.
(v) Mr Chairman, the construction and building industry is very instrumental in stimulating development. Government has for instance selected, construction, especially road construction, as one of its top priorities.
In order to encourage potential indigenous contractors to actively participate in this sector, I have decided to waive duty on the road construction equipment imported by indigenous contractors.
(vi) Mr Chairman, I wish to report that I have -found the current price formula in respect of the four controlled petroleum products, super, regular, kerosene and diesel, very deceptive. Presently duty on these products is as follows: -
Super and regular 100
But these ad valorem rates give the impression that Government is realising a lot of revenue from these products when, in fact, most of it goes back to the oil industry in the form of a rebate.
I have therefore with immediate effect instituted a system of taxation which allows no rebate except in special circumstances. The rates of petroleum products will now be specified as follows: -
Brand Tax per litre Pump price
Super 12.18 32.00
Kerosene Nil 12.00
Diesel 2.74 22.00
In effect, the price changes are:-
(a) in case of kerosene there has been a reduction of Shs 2.40 per litre;
(b) while in case of diesel and super there is an increase of Shs 2.20 and Shs 2.00 per litre, respectively.
As in the case of Income Tax, I propose to amend the East African Customs and Transfer Tax Management Act and subsequent amendments in order to convert the amounts in old currency to the new currency.
Mr Chairman since these amounts include fines and penalties which are in themselves deterrent to tax evasion, I have made revisions considering their adequacy in that respect.
I wish to report, Mr Chairman, a new development in the Customs and Excise Department. The title of the Commissioner of Customs and Excise has now been replaced by that of Director-General of Customs and Excise.
It will, therefore, be necessary to amend the East African Customs and Transfer Tax Management Act to reflect this change in title.
Mr Chairman, I hope to realise Shs 1.0 billion in additional revenue from this source.
Mr Chairman, I have already announced the abolition of tax on basic essential commodities.
In order to compensate for this loss of revenue, I have decided to make an increase in the excise duty on the two excisable commodities of beer and cigarettes.
This should cause no alarm. Already, although the ex-factory price for beer, per bottle is approximately 32 shillings, the public is comfortably drinking the same beer at the cost of Shs 80.
The increase in the price of beer, therefore, will only affect the middle man and not the retail price.
In order to tap more revenue, I have decided as follows: -
(i) Beer — the rate rises from 50 per cent to 70 per cent from midnight tonight.
(a) where the cost of production per 1,000 cigarettes is less than Shs 500, the rate will be 45 per cent from 40 per cent;
(b) where the cost of production per 1,000 cigarettes exceeds Shs 500, the excise duty will be 75 per cent from 70 per cent.
The excise duty rates on cigarettes also take effect from midnight tonight. As in the case of customs, I am proposing two amendments:-
(i) to convert all the amounts in the East African Excise Management Act to new currency; and
(ii) to replace the title of Commissioner of Customs and Excise in the same Act with that of Director-General
Mr Chairman, I hope to realise Shs 0.2 billion as additional revenue from this source.
Mr Chairman, although for practical reasons we distinguish between Sales Tax on imports and Sales Tax on local products, technically, Sales Tax applies equally on both imported and locally manufactured products.
The reason for this is that, unlike Customs Duty, Sales Tax is basically a revenue tax.
Nevertheless, I have taken decisions that I consider necessary either to give relief to the ordinary Ugandan or to promote investment and therefore increase production.
In line with the decision, in respect of Customs Duty, I have abolished Safes Tax payable on basic essential consumer commodities, i.e. salt, sugar, soap and kerosene, with effect from 25th June 1987. I have also abolished sales tax payable on:-
1. Industrial plant, machinery, and equipment.
2. Road construction equipment.
3. Steel bars.
In the area of sales tax, I have also made the following adjustments in respect of a few selected commodities:-
(i) cement from 50 per cent to 25 per cent;
(ii) local textile fabrics from 40 per cent to 25 per cent,
(iii) lorries and buses from 30 per cent to 10 per cent;
(iv) mini-buses from 40 per cent to 20 per cent;
(v) pick-ups from 30 per cent to 20 per cent;
(vi) motor vehicle tyres and tubes from 30 per cent to 20 per cent;
(vii) motor vehicle spares from 30 per cent to 20 per cent;
(viii) motor vehicles for the transport of liquids from 30 per cent to 20 per cent.
Mr Chairman, the reduction in the tax rates on vehicles I have just announced will inevitably mean loss of revenue.
This will, however, be translated into decreased transport rates and fares and decreased prices of foodstuffs. Mr Chairman, this measure is in line with the Government policy to give relief to the ordinary citizen.
Mr. Chairman, the sales tax rates in respect of cement, textiles fabrics, lorries and buses come into effect from midnight tonight. Also taking effect from midnight tonight are the following increases in sales tax:-
(i) beer from 30 per cent to 50 per cent;
a) where the cost of production per 1,000 cigarettes is less than 500, 35 per cent from 30 per cent;
b) where the cost of production exceeds Shs. 500 per 1,000 cigarettes, 50 per cent from 40 per cent;
(iii) spirits, including Uganda Waragi from 20 per cent to 30 per cent;
(iv) soda from 70 per cent to 100 per cent.
I have, in reference to Customs Duty, described the current price formula for petroleum products as deceptive.
I have therefore decided on a specific rate of duty and also abolished Sales Tax on these products.
I hope to realise additional revenue to the tune of Shs 2.4 billion from these measures.
Road User Tax
Mr Chairman, in the 1986/ 87 Budget, Government announced plans to introduce a Road User Tax. But because of logistics, physical and technical bottlenecks, it was not possible to realise this objective.
I am, however, glad to report that most of these bottlenecks have been overcome and that this tax will become a reality in 1987/88.
Vehicles crossing Road Toll points in Soroti, Jinja, Masaka, Mityana and Gulu roads will be required to pay Shs 10 only each time of crossing the Road Toll The only exempted vehicles will be those with Government and Diplomatic numbers.
I expect to realise Shs 23.0 million from this measure.
Mr Chairman, in an effort to encourage the flow of resources into meaningful investments, we waived Stamp Duty payable on mortgages from Uganda Development Bank and the East African Development Bank.
The rationale was that loans from these two institutions are for development purposes and will, therefore, go to areas that will contribute to capital formation and thus the in-crease rate of growth. This policy has been successful. During 1986/87, a total number of 44 projects costing over $26.0 million equivalent of shs 1.56 billion were approved by these institutions.
I, therefore, intend to continue this policy during the year 1987/ 88. Borrowers from commercial banks are equally encouraged but have to submit their projects so that the Government can determine if they fall in the approved category.
In summary, therefore, Mr Chairman, I hope to realise a total additional revenue of Shs 4.123 billion from these new taxation measures.
In conclusion, Mr Chairman, Uganda has great potential which can be taken advantage of in establishing a strong economic base and self-sustaining in the medium and long term. The Ten-Point Programme, Mr Chairman, is very eloquent on this point.
The conditions are now ripe for the people of Uganda to take off on the road to recovery. In your person, Mr Chairman, and in the organisation of the National Resistance Movement, the Ugandan people have for the first time a leadership that is analytical, steadfast and clear-headed.
This is the component that had been lacking for a long time, given that this country is potentially rich.
The Ugandan population, Mr Chairman, must be constantly reminded that the responsibility of correcting maladjustments in our economy rests on the people of Uganda themselves.
In this respect, people should be prepared to work harder in order to accomplish the intended recovery.
The fact that the Government has mobilized external resources to apply to the Economic Package should not give the wrong impression that the people can expect a soft life immediately.
On the contrary, we should be prepared to tighten our belts and resolve to work every hour that passes. This is the critical path to the realisation of our growth potential.
Thank you, Mr Chairman, I beg to move.