Uganda Proposes New Taxes to Boost Revenue Amid Controversy

The Ugandan government has proposed several new taxes for the upcoming 2024 financial year, aiming to increase revenue and ensure that the wealthy pay their fair share. The Ministry of Finance and Economic Development unveiled the measures, which include levies on agent banking transactions, non-business asset sales, fuel, kerosene, and cement. The proposed taxes are expected to generate approximately Shs. 200.92 billion in additional revenue.

Why this matters: The introduction of new taxes can have far-reaching implications for the economy, impacting not only the wealthy but also low-income individuals and businesses. As Uganda seeks to balance revenue generation with financial inclusion and economic growth, the success of these tax proposals will be closely watched by other countries facing similar challenges.

The key proposals include a 0.5% levy on the value of transactions withdrawn through agent banking, a 5% tax on the sale of non-business asset sales like land and rental properties in cities and municipalities, a levy of Shs. 1550 per litre of fuel and Shs. 500 per litre of kerosene, and a levy of Shs. 500 per 50 kg of cement, adhesives, grout, white cement, or lime. These measures aim to target the wealthy while acknowledging that the poor are already contributing through existing mobile money taxes.

The Parliament of Uganda is set to discuss the tax proposals during a plenary sitting on May 3, 2024, at 10 a.m. However, the proposed taxes have already faced opposition from the Uganda Bankers' Association (UBA), which has urged Parliament to drop the proposed tax on agent banking. The UBA argues that the tax would discourage Ugandans from using financial services offered by agent banking, which has played a significant role in boosting Uganda's financial inclusion agenda.

The Agent Banking Company, established in 2017 by the Uganda Bankers Association, supports the Financial Institutions Amendment Act (2016), which enabled commercial banks to engage in agent banking, banc-assurance, and Islamic banking. The Bank of Uganda passed regulations to operationalize agent banking in 2017, recognizing its potential to expand financial access.

The Uganda Revenue Authority (URA) has emphasized the importance of embracing financial technology trends to enhance tax compliance and widen the tax base. URA Commissioner General John Musinguzi stated, "Adoption to technology is the new way of doing things in enhancing tax collection and compliance." He further added, "Embrace the transformative potential of technology to ensure desired tax compliance and financial inclusion."

The Ministry of Finance, Planning, and Economic Development has stressed the need for economic transformation through productive manufacturing and high-value services. Moses Ogwapus, Commissioner for Financial Services Department, noted, "Economic transformation calls for producing new products on the market in new ways, starting new businesses and new industries, and selling new merchandise."

The financial sector is seen as a driver of business growth and sustainability. Fabian Kasi, Managing Director of Centenary Bank, emphasized, "Financial inclusion is a driver of business growth and sustainability." Centenary Bank contributed sh250 billion in various taxes in 2023, with an average tax collection of sh20.8 billion per month and employment of over 3,300 Ugandans.

The Ugandan government seeks to increase revenue through the proposed taxes, facing the challenge of balancing economic growth, financial inclusion, and tax compliance. The upcoming parliamentary discussions will be pivotal in determining the fate of these tax proposals and their potential impact on Uganda's fiscal framework. The opposition from the banking sector highlights the need for careful consideration of the unintended consequences that may arise from the new levies.

Key Takeaways

• Uganda proposes new taxes on agent banking, non-business asset sales, fuel, kerosene, and cement.
• New taxes aim to generate Shs. 200.92 billion in additional revenue.
• Proposed taxes target the wealthy, but may impact low-income individuals and businesses.
• Uganda Bankers' Association opposes the tax on agent banking, citing potential harm to financial inclusion.
• Parliament to discuss tax proposals on May 3, 2024, with potential impact on Uganda's fiscal framework.