Budget 2018: The taxes you face

There are no big surprises in respect to budgetary allocations but it is clear every item you will put your hand on next financial year will likely be taxed, writes ALON MWESIGWA.

Look around! Whatever you see or own, you may be required to pay tax for starting July 1, according to the highlights of the 2018/19 budget to be read by Finance minister Matia Kasaija today, June 14.

The proposed levies are expected to raise Shs 769.5 billion while another Shs 272bn will come from new and revised administrative fees.

From the social media wall you open every morning to the value of monetary transaction on your mobile phone, to a company that has been struggling to make profit for the past seven years, the tax hammer will likely not spare anybody.

Some of the new tax measures

According to the budget passed by parliament on June 1, Uganda Revenue Authority is expected to collect Shs 17 trillion in 2018/19, up from the Shs 15tn target the tax body had last financial year.

The entire budget is Shs 32.5tn – at least 11.6per cent up from the Shs 29tn of the 2017/18 financial year. Recurrent expenditure, which includes wages and salaries, interest payments will take 60% (Shs 19.4tn) while development expenditure will account for 40% (Shs 12.9tn)

According to experts, some of the tax measures imposed like the Shs 200 daily social media fee will require the tax body to deploy special software to detect users in order to be able to collect this money.

“There must be a technology that enforces that by placing a surcharge when you access social media sites,” said Paul Lakuma, a research fellow at Makerere University-based Economic Policy Research Centre.

WHERE ARE THE TAXES?

Kasaija will announce several new taxes – perhaps more than ever seen in recent budgets. This demonstrates the government’s desperate attempt to raise money from local sources – meaning Ugandans are entering a financial year where much of their disposable income will be nipped off by the taxman.

For long, the finance mandarins lamented about how a sizeable chunk of the economy was untaxable. Not anymore.

“This low domestic revenue is largely contributed to the structure of the economy with a large informal sector,” said the parliamentary Budget Committee report.

For the first time, government introduces a 0.5% levy on gross revenue of companies that have been making losses for the past seven years. In the eighth year, the company has to pay taxes. This is expected to generate Shs7bn.

According to audit and financial services firm, PriceWaterhouseCoopers, “this tax may turn out to be too high especially in industries that are highly capital-intensive like oil and gas and other public utility sectors.”

Each transaction made on mobile money will have the user paying 1% of the value to the taxman and this was expected to generate at least Shs115 bn.

Kasaija told journalists last week that the tax measure had been passed in error and that it was a lot for people to pay. He is, however, expected to announce 0.5% on value of mobile money transaction when he reads the budget on Thursday.

Regardless of the figure he reads, PWC gives an analysis of how the measure will work. The firm says it will mean that with effect from July 1, government will take 1 per cent (or 0.5% if the minister cuts it) of the value of your money every time you use your mobile money account.” 

“This means that when you receive money in your mobile money account, government will tax one per cent of it. When you deposit money on your mobile money account, government will take one per cent of it.”

The audit firm added: “When you withdraw the same money from your mobile money account, government will again take another one per cent of the same money. This tax will always apply every time you use your mobile money account whether you are paying your child’s school fees, paying your Yaka bills, or sending money to pay your parent’s medical bills in the village.”

This measure, according to several analysts, is likely going to kill the business with people expected to shy away from using mobile money services.

“This measure will drastically reduce the number of people transacting using mobile money. It will be cheaper, regardless of where you are, to use a bank to send and receive money than mobile money,” said an employee at one of the telecom companies.

PWC said this tax is designed in such way that it would continue when one puts money on their account until there is nothing left to tax.

“This proposed new tax of one per cent is different from the fee that mobile phone companies charge you for using their mobile money platform. It is a new tax that government is proposing to charge you for using your mobile money account.”

PWC says the tax is discriminatory since it does not apply to those who use the banks to transact their money. It will also have an impact on Uganda’s majority poor families which are unbanked, and therefore, use these platforms to send and receive money.

The tax on the value of transactions does not include the fees and charges one pays to use the platform – the tax goes directly to government.

On top of that, government has increased excise duty on mobile money and bank charges from 10% to 15% to generate Shs 45bn. This means the money you are charged to use both the bank and mobile money will have to increase effective July 1.

Another key tax measure is the Shs 100 per litre of fuel bought to generate Shs 196.4bn. This will bring the tax per litre of fuel to Shs 1,300. Government says this money will be used for road maintenance.

Another measure to highlight is the increase of motor vehicle registration from the current Shs 1.2m to Shs 1.3m. This will generate Shs 4bn for the government.

For local firms dealing in export of semi-processed products, one will pay assorted taxes starting with July 1. For instance, the minister will impose an export levy of $0.4 per kilogramme on wheat bran, maize bran, rice bran, cotton seed cake and sunflower cake.

WHICH SECTOR TAKES WHAT

The first place goes to interest payments, underlining how much debt the country has accumulated, meaning it now has to spend heftily to pay the interest accruing.

At least Shs 8.6tn (30%) of the budget has been set aside to pay interest on the huge public debt, more than six-fold what critical sectors like health Shs 1.7tn (5%) and agriculture Shs 873bn (3%) will receive this year.

The country’s debt has grown to $10.24bn as at December 2017, up from $8.7bn as at December 2016. Ministry of works and transport has been allocated Shs 4.7tn, equating to 14.8% of the entire national resource envelope. The sector, however, experienced a cut of 1.5% compared to what it received in the ending financial year.

Nonetheless, it still leads the pack in receiving the biggest chunk of budgetary allocations. Education ministry takes the third spot with at least Shs 2.7tn (9.6%) of the budget. The energy ministry comes fourth, being allocated Shs 2.6tn (8.7%).

The budget committee notes with concern: “The high interest payments constrain resources that would otherwise be utilised in the productive and social service sectors of the economy.

“Although the debt sustainability analyses indicate a low risk of debt distress for Uganda, the rate at which public debt stock is accumulating, points to increasing vulnerabilities to the country,” said parliamentary committee’s report.

amwesigwa@observer.ug

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read more here: The Observer - Uganda. This post is syndicated.

The Observer - Uganda

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