Are new tax proposals fair to taxpayers?

by Business Times writer
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The Ministry of Finance has introduced five new tax Bills to Parliament with the aim of generating enough resources to finance the national budget in the upcoming fiscal year.

The proposed tax bills include; the Excise Duty (Amendment) Bill, 2024, the Stamp Duty (Amendment) Bill, 2024, the Tax Procedures Code (Amendment) Bill, 2024, the Value Added Tax (Amendment) Bill, 2024 and the Income Tax (Amendment) Bill, 2024.

Some of the proposed taxes target fundamental consumer goods such as petroleum products, construction materials, and bottled drinking water.

For instance, the Government proposes to impose an excise duty tax rate of Shs500 per 50 Kgs of Cement, adhesives, grout, white cement or lime, in a move that will likely increase prices of these products on the market.

Government has also proposed to impose a 10% or Shs75 per litre whichever is higher, on mineral water, bottled water & other water purposely for drinking.

Government also proposes a sh100 additional levy on each liter of fuel, increasing the duty on fuel items such as petrol to 1,550 shillings per liter, diesel and other fuels to 1,230 shillings per liter, and kerosene to sh500 per liter, as outlined in the Excise Duty Amendment Bill 2024.

Furthermore, the government has proposed to impose a 5% withholding tax on gains earned from the sale of; land in cities & municipalities, sale of rental property and sale of shares in a private company. Taxpayers are required to remit this money to URA within 15 days after disposal of the assets or pay fines if the tax isn’t remitted within the stipulated period. This is contained in clause 3 of the Income Tax Amendment Bill 2024 that was also tabled before Parliament by the Ministry of Finance.

Impact on Taxpayers

The proposals put forth in the new tax amendment bills are already causing concerns among taxpayers, who fear that these changes will likely exacerbate the financial burdens currently faced by Ugandans.

The Mbale city lawmaker, Karrim Masaba says that although the tax on petroleum products may be justified, it has come at a wrong time, given that the economy is still recovering from the effects of the global pandemic.

“My view on it [Excise Duty Amendment Bill 2024] is that it could probably be the right sector, but at the wrong time. The timing right now is not the best. The Economy is still trying to recover from the effects of COVID-19, and you know that once you add a tax on petroleum products or fuel, then all other sectors are going to be affected. So, once you increase tax on petroleum, in one way or another, it will directly or indirectly affect the prices of other commodities in the supply chain,” he says.

However, the Uganda Revenue Authority (URA) Commissioner General, John Musinguzi Rujoki disagrees.

“A bodaboda rider, if he consumes about 5 litres [of fuel] a day, the increment in tax that is being proposed will be charging him an extra 500 shillings. So, why do you think that a bodaboda rider will be negatively impacted by this increase of 500 shillings on the fuel for the whole day when the shortest journey on a bodaboda is at least 1000 [shillings].”

He adds: “Given that the tax on fuel has not been increased for the last three years, and the proposed increment is that decimal, I think the impact on the final consumer will not be felt.”

Juliet Nagginda, the tax manager at PriceWaterhouseCoopers (PWC) says that the tax increment will result in rise of commodity prices.

“The tax proposals have the potential to drive up commodity prices and fuel is one of the proposals that have been introduced in the Excise duty Amendment Bill. We are seeing a proposal to increase excise duty on petrol by 100 shillings, excise duty on diesel by 100 shillings, and excise duty on kerosene by 300 shillings. So, while someone may look at it and say, it is only 100 shillings, we know that from experience that 100 shillings may appear small, but the compounding effect that it creates, you find that the prices are going to go up much higher than the actual 100 shillings that has been introduced on such on such commodities,” she explains.

“So you find that the cost of transport would go up, and the cost of many other things because fuel really drives the economy.”

Government has defended the move to increase the taxes as detailed in the bills submitted to Parliament. It said the move is aimed at lessening reliance on borrowing to finance the budget.

The Ministry of Finance also said the move is aimed at bringing more Ugandans into the tax bracket on grounds that a vast majority of the population is not taxed.

Nagginda disagrees.

“Looking at let’s say the indirect tax measures, I would not look at that as an expansion of the tax base. Because already as Ugandans who use fuel for different things, we are already paying tax. So this is just increasing the burden on the taxpayers that is already existing, and then you find that we have to pay more for the products that we are consuming. So when you talk of expanding the tax base, the excise duty rates on those commodities like fuel would not really be an answer to expanding the tax base,” says Nagginda.

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