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Government struggling to raise revenue to finance national budget

Published 3 months ago -


Parliament of the Republic of Uganda should have considered and approved the national budget for FY2017/18 on 8th May 2017. However, due to less cooperation by government Ministries, departments and agencies by delaying to submit their final sector ministerial policy statements, the scrutinizing of the budget is still ongoing though some tax bills have already been passed.

The total national resource envelope for the next financial year amounts to UGX 28.9tn. This is to be financed through external financing-UGX 12.11tn and domestic financing-16.8tn. These resources are to be expended in two categorizes, recurrent expenditure- UGX 17.4tn and development expenditure11.5tn. This reflects high expenditure on administrative and consumption than development budget. Important to note is that -UGX 6.99tn will be spent on debt repayment while  UGX 2.67tn is for paying interests on these accumulated debts.

It should also be noted that domestic financing includes both domestic borrowing and internally generated resources in terms of revenue collections which include both tax and non-tax revenue. In the next fiscal year, government projects to raise UGX1.47tn from the domestic market through issuance of securities. This is higher than the UGX 1.35tn that was raised from the market in FY2015/16. Government should recognize that high levels of domestic borrowing have implications for private sector credit and interest rates and stifles private sector growth.

One of the reasons for the shortfall in revenue collection of UGX 9.27tn against the projected UGX 9.5tn in the foregoing fiscal year is reduction in private sector credit (which most traders use for conducting business). It averaged at 7.5% in October 2016 down from 18.9% in October 2015.

And for revenue collection, UGX 15.06tn is the projected tax to be collected in FY2017/18, of which UGX 14.68tn and UGX 376.3bn is tax and NTR respectively. Although the country has recorded impressive revenue collections over the years. We not only still remain short of the government tax policy but also the regional policy framework on revenue collection.

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The country’s current domestic revenue is estimated at about 13.2% of GDP. This is short of the government policy of realizing a 0.5% of GDP in the tax to GDP ratio every financial year to attain the 16% tax to GDP ratio by 2018[1]. It is also below the sub Saharan average of about 20% and the East African Community average of 17.4% (Kenya’s 25%, Burundi’s 19%, Tanzania’s 16.8% and Rwanda’s 14%)[2].

The above highlighted under performance in revenue collection can be largely attributed to the low levels of economic growth. Over the years, the country has failed to meet the projected economic growth targets. For instance, during FY 2015/16, the economy grew by 4.8% and in FY 2016/17, it slowed to 4.5%[3]. This was below the National Development Plan II target of 7%[4]. The projected growth of 4.5% for the FY2016/17 is also unlikely to be achieved according to the Bank of Uganda Monetary Policy Statement of April 2017

As a result of the low levels of development, the country’s economy has remained largely informal with high rates of unemployment, underemployment and low incomes[5] which hinders Improvement in revenue collection. Uganda’s informal sector as a percentage of gross national income is 40.3%[6]. This is higher than Kenya’s (29.5%), Rwanda’s 40.1% and Burundi’s (39.6%) and only less of Tanzania’s (53.7%)[7].

Also, the government delay in clearing its domestic arrears has is not only affecting tax mobilization but also economic growth in the long-run, thus frustrating the widening of tax base. The current government’s outstanding arrears amount to UGX 2.7tn, with an attributable tax of UGX 116bn[8]. In addition to the weak tax administration system. Recently, Daily Monitor newspaper, one of the leading dailies reported the delay by the tax authority to collect revenue amounting to UGX 710bn from a number of companies dating 10 years back.

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In spite of this, government has extended tax exemptions to a number of companies mainly foreign owned without any legal and policy framework restricting capital flight at the expense of the struggling indigenous manufacturers. Since 2009 to date, government has extended over UGX 198tn in tax exemptions to these companies, including paying corporation tax for those who declared profit. In the next financial year, government has proposed to spend UGX 23bn on paying taxes for a number of companies. In the ongoing probe into the famously named golden presidential handshake, the parliament committee has learnt of the dubious exemption of one of the oil company in which government lost about USD 157m.

 In light of the above, the only solution for government to increase revenue collection and reduce both domestic and external borrowing is to adopt and implement social and economic policies and programs with great impact on people’s income generation and in turn be subjected to tax. In addition to a streamlined policy on tax exemptions.

[1] National Budget Framework Paper FY2017/18-FY20/21

[2] Minister of Finance, Planning and Economic Development brief to Parliament Committee on Finance, Planning and Economic Development.

[3]Report of the Parliamentary Committee on National Economy on the Performance of the Economy during the FY2015/16.

[4]Ibid

[5] According to the Uganda National Population Census of 2014, unemployment levels stand at 64%

[6] Ibid

[7] Ibid

[8] Ibid

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