Finance, Planning & Economic Development minister, Hon. Matia Kasaija, has decried a low domestic revenue mobilisation capacity yet the country aims at leaping into a middle income status by 2020.
At only 13% of GDP, the tax revenue is inadequate to fund critical development programmes and projects, Kasaija said Thursday while delivering the 2017 national budget speech at Serena conference centre in Kampala.
He said major projects especially in transport, energy and ICT are therefore financed through borrowing, both externally and domestically; as a result of this, public debt has increased in recent years.
According to Kasaija, Government’s resource mobilisation strategy is to boost domestic tax revenue in order for critical investments to be financed by domestic revenue.
“Tax collections for the year now ending are projected to amount to Shs 12,882.3 billion, against the budgeted figure, reflecting a shortfall of Shs. 377.02 billion.”
The shortfall has been caused by declining import volumes which grew marginally by only 0.79% against a target of 9.1%, he said, explaining that this decline in import volumes is a result of the depreciation of the Uganda shilling.
Major tax collection heads reflected this trend with direct taxes on business, employment and property incomes, registering a shortfall of Shs 96.04 billion by April 2017.
Hence tax rates have been kept unchanged, with only modification being made to close loopholes.
Tax administration will be enhanced through strengthening detection of non-complaint taxpayers, recovery of tax arrears and combating smuggling, undervaluation and under declaration.
The automation of online assessments and the electronic tracking of transit goods from Mombasa are also ongoing.
Customs data will be synchronised with income tax returns. This will lead to improved systems, including implementation of automated customs border posts, ICT based verification of imports, and strengthened internal control systems to prevent leakages.
The Income Tax Act has been amended; deductions for accelerated depreciation have been introduced as an incentive for upcountry investments to allow recovery of costs of acquiring plant and machinery and construction of industrial buildings much faster before the payment of corporate income tax.
Lotteries and Gaming Tax has been rationalised by imposing withholding tax on winnings in order to prevent evasion. This will deal with under-declaration of tax returns by some gaming houses claiming high winnings by gamblers.
Multinational enterprises will now be required to provide information in respect of their dealings with their associates. Multinational enterprises failing to comply will incur a penalty tax of shillings fifty million.
To limit disputes on rental income tax payable, estimates of rental rates will be based on the rating of rental property in a specific location, if the taxpayer does not file returns, or provides a misleading return.
The Bujagali Energy Limited has been exempted from Corporate Income Tax to reduce the cost of power to end-users while the income of a body established by an Act of Parliament to regulate the conduct of professionals, such as the Institute of Certified Public Accounts of Uganda, has been exempted.
Value Added Tax
The value Added Tax Act has been amended: VAT on crop extension services, animal feeds and premixes, deep cycle batteries and composite lanterns, irrigation works, sprinklers and ready to use drip lines has now been exempted while interest on outstanding VAT and the penal tax as was done with the Income Tax Act is similarly limited.
The Excise Duty Act has been amended to introduce specific rates on beer and soft drinks that are equivalent to the current ad valorem rates.
This will ease administration and reduce time and money spent in disputes especially as regards the cost, insurance and freight (CIF) value of imports.
As part of the campaign to reduce consumption of cigarettes, Parliament approved an increase in excise duty of cigarettes; locally manufactured soft cap from Shs 50,000/= to Ushs 55,000/= per 1000 sticks and imported soft cap from Shs 50,000/= to Ushs 75,000/= per 1000 sticks; and locally manufactured hinge lid from from Shs 75,000 to Ushs 80,000/= per 1000 sticks and imported hinge lid from Shs 75,000 to Ushs 100,000/= per 1000 sticks.
Tax Procedure will now require all persons to file a provisional return before the end of the first quarter and make payments on a quarterly basis.
The only exception is for persons in Lotteries and Gaming who will be required to file weekly and provide monthly returns for income tax purposes. This change is aimed at easing payments and improving compliance.
Goods will henceforth be required to affix tax stamps, regardless of whether such goods are produced locally or imported. The tax stamps will minimise under declaration of such goods by both importers and local dealers, and boost tax collections.
Failure to affix tax stamps, the defacing of stamps, the possession of unstamped goods, or any attempt to acquire or sell stamps without authorisation will lead to penalties as prescribed by law.