Civil society calls for withdrawal of proposed Govt tax measures

Finance Minister Matia Kasaija has his work cut out

Summary:

  • The Tax Justice Alliance Uganda has disagreed with most of the proposals in the five tax amendment bills that were recently tabled before parliament as part of the 2024/2025 budget process.

The Tax Justice Alliance Uganda has disagreed with most of the proposals in the five tax amendment bills that were recently tabled before parliament as part of the 2024/2025 budget process.

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The new tax measures are contained in the Income Tax Amendment Bill, 2024, the Excise Duty Amendment Bill, 2024, the Value Added Tax Amendment Bill 2024, the Stamp Duty Tax Amendment Bill 2024, and the Tax Procedure Code Act Amendment Bill 2024.

The amendments are aimed at increasing tax revenue to enable the government to bridge the gap that has been left by the decline in external assistance as well as reducing sources of international finance.

This also comes as the government intensifies the mobilization of resources to cater to the rise in debt servicing levels and loan repayment obligations.

The Ministry of Finance, Planning and Economic Development has proposed a resource envelope of 58 trillion shillings next financial year, an increase of about 6 trillion shillings from the current budget, with 31 trillion shillings coming from domestic resources, mainly taxes and non-tax revenues.

Mark Mutumba, the Tax Policy Analyst at SEATINI Uganda said the government has made remarkable proposals that could significantly increase collections but that others could have negative effects on the economy.

Civil society groups are opposed to the taxation of non-business assets, a provision that introduces a 5 percent tax charge on proceeds obtained from the disposal of a non-business asset like land and buildings in a municipality or city.

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The group says taxing business assets like land and buildings in a municipality or city could discourage investment in the land “due to the perceived additional costs of acquisition,”.

The group is of the view that small and medium enterprises are likely to suffer more in getting places to set up businesses. It observes that there is land at industrial parks, it is always allocated by large organizations.

Mutumba who presented a joint statement, added that the proposal creates ambiguity because it does not explain some terms like “Principal Place of Residence,” while also it creates unfairness between property owners in the urban areas and those in rural areas.

Others present included Akina Mama wa Africa, Civil Society Budget Advocacy Group, Uganda Debt Network, ACODE  and the Uganda Parliamentary Network on Illicit Financial Flows and Tax Justice, as well as the the Federation of Small and Medium Enterprises.

The group also welcomed the proposed tax exemption on private equity and venture capital funds, which is aimed at encouraging more businesses to access cheap and patient capital from such sources.

These are investors who take an interest in a business and offer to put in more capital to grow it to recoup their investment later when the business has grown.

However, while this is commendable, civil society is worried that it might be misused since currently there are no regulations under the Capital Markets Authority Act to guide the registration process of such investment companies.

They want it rejected until there are proper regulations in place, as this absence of regulation could result in redundancy in the law and facilitate revenue leakages.

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They also recommend withdrawing the proposal to introduce tax exemptions on income earned from the disposal of government securities on the secondary market, adding that clear guidelines are essential to prevent unintended consequences like increased government borrowing and diversion of capital from key sectors.

However, they say, this will encourage investors to go for government securities and deny capital flows into another vital area of the economy.

The government also proposed to waive taxes on the establishment of specialized investments like health facilities, to increase access to proper healthcare by Ugandans.

However, presenting the joint civil society statement, Mutumba said there is a need to define the term “specialized hospital” for tax purposes and also put in place measures to ensure that these beneficiary facilities will also benefit all sections of the population.

The Civil Society also opposed the increase in the excise duty on essential commodities like fuel and drinking water, saying that this would affect the livelihoods of Ugandans.

Mutumba wondered why excise duty, which is aimed at discouraging import or manufacture of hazardous materials was now being used to discourage consumption of essential items.

The civil society also proposed some alternative tax measures to cover the gap left by their demand to scrap some measures, and these include curbing illicit financial flows by fighting smuggling, corruption and other illegal practices in businesses.

They are also calling for the operationalization of the Mining and Mineral Act 2022, which provides for the registration of artisanal miners.

This, according to Mark Otile, Research Officer at ACODE, would increase tax revenues with these small investors contributing.

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The Tax Justice Alliance also called for the expeditious implementation of the rationalization of government ministries, departments, and agencies to save money lost through duplication of roles and inefficiency.

In the same way, they want a faster implementation of the Tax Expenditure Governance Framework and the Tax Expenditure Rationalization Plan that aims at revising the tax incentives regime which has been blamed for unnecessarily denying the government billions of shillings in due revenues.

They also condemned the persistent supplementary budget requests by the government and the continued deepening of the tax base instead of finding measures to widen it.

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