Uganda's 2007/2008 Budget: In Whose Interest?
Uganda's Finance Minister Ezra Suruma with the 2007/2008 budget.

Uganda's 2007/2008 Budget: In Whose Interest?

Highlights of Uganda's 2007/2008 budget.

By Gerald Businge
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First published: June 14, 2007

Major highlights

  • Priority areas: energy, transport infrastructure, ICTs, Science and technology, industrial development; rural development, human development, security and government, education (especially Universal Secondary education)
  • 92bn for thermal generation
  • 119bn for development of hydro power plants (Bujagali)
  • More incentives for export investors -10yr tax holiday
  • Government to fund 61.7% of budget locally
  • Taxes scraped: road licenses no more, income tax for airlines,
  • New taxes: environmental tax on motor spare parts, polythene bags, local service tax, local hotels tax, 18% and 21% tax increase on fuel
  • 35bn for road maintenance, 15bn for completion of stalled roads
  • 34bn for recruitment of secondary teachers
  • 12bn to roll out NAADS( National Agricultural Advisory Services) to all districts
  • 10bn for bonabagawale (prosperity for all) loans -to be managed by Prosperity for all desk in President's Office and Sub-county Chiefs
  • Agricultural loans to strengthen marketing and processing of local products
  • 2b for marketing research in agriculture
  • 11bn for recruitment of health workers and provision of drugs at Health centre IIIs
  • National Health Insurance scheme for later next year.
  • Soldiers' salary increased from shs. 140, 000 to 180, 000
  • 15.6bn for local government pension arrears
  • 10.2mUSD to fight corruption
  • 7.5bn for model sub-county program
  • 50bn fro IDB (international Development bank ) to support SMEs
  • 33bn for local governments
  • 7.5bn for local government pension arrears
  • 200bn to pay pension arrears
  • 80bn to be pensioners this year
  • Total resource envelope: 5025bn shillings

The Minister of Finance, Planning ad Economic Development, Dr. Ezra Suruma has told Ugandans that the government will fund more of the country's budget next year. While reading the national budget for the 2007/2008 financial year at Parliament on Thursday afternoon, the minister as expected said that the government will be prioritizing the provision of energy, transport infrastructure, Science and Technology, rural development, human development, security as well as funding the education sector in its expenditures in the coming year.

A buoyant Suruma told Parliament that the government expects to get 5,025bn shillings (US$ 3,045 million), of which 61.7% will be financed locally. The minister said that the government, through the Uganda Revenue Authority, expects to collect 3, 190bn. The government expects donors to fund 38.3% of the budget as budgetary support and project support. This Suruma said underlines the government's intention to fund more of its budget. Last year, donors funded 44% of the budget.

Dr. Suruma said that the government had decided to enhance tax incentives for investors engaged in exportation of consumer and capital goods. Uganda will give a 10year tax holiday for investors adding value to local products for export, offer VAT (value added tax) exemption on raw material imports, plant and machinery, as well as remove withholding tax on profits. This measure is expected to cost Uganda a revenue loss estimated at 22bn.

The government also announced increased funding for the education sector (16.8% of the budget), agriculture and provision of credit (loans) to local people organized under Savings and Credit Organisations (SACOS) in sub-counties.

Dr. Suruma said that he is sure his budget, read under the theme "re-orienting government expenditure towards prosperity for all," will expand opportunities for local people in all sub-counties so that they can improve their incomes.

The minister also announced VAT reduction on residential properties to promote proper accommodation. The government is to loose about 2bn from this measure.

In what will excite some Ugandans, the government has also abolished road license fees paid by all vehicles, except charges on first registration. Dr. Suruma said that the government will lose about Shs 80bn which it was getting in these road fees. He said that this tax had to go since there was a lot of forgeries of licenses, high collection fees and defaulting.

But the government as expected has increased excise duty on fuel from shs.450 to 530 per liter of diesel. Diesel has been increased by 18% and petrol by 21%. This will help the government get 56bn shillings. The government is also starting a Road Fund to get direct funds to maintain the roads and ensure appropriate infrastructure to facilitate production and marketing of goods.

The proposed Road Fund will be financed through other road-user charges such as weight-distance charges, international transit fees, axle load fines, and bridge and road tolls. Private car owners will feel the pinch most, as operators of public transport vehicles will as usual pass on the burden to those who use public transport.

Dr. Suruma also announced VAT incentives for hotel owners to upgrade their facilities ahead of the Commonwealth Heads of Governments Meeting (CHOGM) to take place in Kampala in November 2007. There minister also removed taxes on building materials.

International air transport carriers will also have their time of happiness in Uganda as they will be exempted from payment of income tax on income derived from Uganda.

The minister also proposed a fixed levy of 0.25USD per kilogram of hides and skins, introduction of a 10% environmental levy on used motor vehicle spare parts. This will add to the already existing 10% environmental levy on importation of used motor vehicles.

The government has also and abolished transit parking yards which were introduced to help in the control of transport cargo vehicles, provide security and ensure payment of taxes on cargo to URA.

In line with the East African Community integration process, Uganda read its budget simultaneously with Kenya and Tanzania.

Dr. Suruma said that the tax and revenue measures have been agreed on by the East African Community member states which have to levy a common external tariff.

Under the protocol on the establishment of East Africa Customs Union, the ministers of finance have to hold joint budgetary consultations. They met recently and agreed on a number of measures to be implemented in the 2007/2008 year.

The East African finance ministers decided to ban polythene/plastic bags (buveera) of less than 30microns and impose 120% excise duty on the rest. Importation and manufacturing of these buveera is banned with effect from July 1st, 2007. But the ministers of Kenya, Uganda and Tanzania are giving a transition period of up to September 30th 2007 to allow buveera traders to clear their stock.

The ministers also announced a reduction of excise duty on importation of transport bus carriers that take more than 25 people from 25% to 10% to allow Uganda get more such buses to transport delegates during the CHOGM.

According to Dr. Suruma, the East African ministers also agreed to revive common Visa fees in the coming financial year.

Apart from tax increases on beer, tobacco products, other new taxes introduced include those announced to support local governments, namely local service tax and local hotels tax. Local service tax will be paid by all able and employed, except soldiers, police and prisons officers and local defense unit officers, as well as the unemployed and 'persons living in poverty'. The local hotels tax will be paid by whoever gets accommodated or eats in any hotel, restaurant or lodge in a given local administration area.

Despite the reduction on allocations to defense and public expenditure in favour of education, agriculture and information technology, these new taxes will do little to prove the government's assertion that this is a poor man's budget.

The focus of the country's security expenditure, said Dr. Suruma, will on the fight against international terrorism and the modernization of the Uganda People's Defense Forces. He also announced an increase in salary of soldiers from shs. 140, 000 to 180, 000.

Dr Suruma said that the government is focusing on critical actions, which have a direct bearing on increasing productivity, household incomes, and overall economic development, as well as increasing the avenues for local revenue generation.

"This budget has shown the resilience of the Ugandan economy. To register an economic growth of 6.5%, maintain inflation at 7.8%, the Uganda Revenue Authority collecting a surplus of shillings 2,566 billion in a time of electricity shortage, high oil prices is very remarkable," said President Yoweri Museveni in a speech read for him by Vice President, Prof. Gilbert Bukenya. Museveni is on an official visit in Germany.

Uganda's economic growth in the last two financial years has been hampered by drought, an incapacitating energy crisis, and a dilapidated road network that saw sectors like agriculture and manufacturing register negative growth in the last two years.

"I want to be optimistic that a people who have been able to grow at a rate above 6% per annum over the last 15 years while at war and without oil, can grow even faster while we are not at war and when we have oil," Dr. Suruma said. Uganda is expected to start commercial oil production in the western part of the country in 2009.

All ministries will be required to account for the budget allocation based on the impact in each sub-county in terms of achieving the government's mission of prosperity for all, Dr. Suruma added.

By Gerald Businge
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First published: June 14, 2007
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Gerald Businge is a media practitioner and features Editor at Ultimate Media Consult in Uganda. He is a graduate of Mass Communication and several journalism and leadership certificates. He has been a practicing journalist since March 2001 and has worked at The New Vision as features writer, and has written extensively for different newspapers, magazines, newsletters in Uganda and internationally. He currently does fulltime media communication consultancy work as well as writing and editing at Ultimate Media Consult (U) Ltd where he is a founding member and CEO. You can get his attention so long as you are interested in and you are working for a better world.