Uganda-Tax: Presidency Turns Down Tax Cut

Uganda-Tax: Presidency Turns Down Tax Cut
Uganda-Tax: Presidency Turns Down Tax Cut

Ugandan Government at the centre has shown that it has no interest in reducing tax rates as clamoured by certain groups in the country.

Uganda-Tax will not be subject to subsidy or reduction of taxes on both locally produced and imported goods. According to President Yoweri Museveni in a recent statement, highlighting that it is an idea that will do the country more harm than good.

He mentioned that taking this risk would exhaust both family savings and National Reserves, which would compromise the country’s ability to pay for imports. He noted how he was tempted to consider this in the past but quickly realized the kind of damage it would do to the country’s budget and the planned developments.

He added that he was going to exempt locally produced goods such as milk, sugar, and cement from taxation, so people can buy more of them, and in the process, aid the growth of the economy, but was highly discouraged by the amount of tax revenue that will be lost.

On sugar, the country would lose Ugx.193 billion, on cement, Ugx.200 billion, and on mitayimbwa, Ugx.120 billion.

The president further stated that when the price of certain commodities rises, one of the ideas that people think will solve the issue is the removal of taxes or subsidies by the government from those products, oblivious of the negative effects it would have on imported commodities.

He cited petrol as an example, stating that before November 2021, a liter of petrol was Ugx. 4,590 which meant USD 1.3 at that time. Now, a liter of petrol values at Ugx. 5,500 which means USD 1.48. He mentioned that this is all the work of tax.

A hike in the price of petrol doesn’t just empty the pockets of the consumers, it also empties the country’s dollar reserves. At the moment, the country has up to USD 4.5 billion in its Reserves, enough to support imports for 4.2 months.

Museveni further explained that subsidizing or removing taxes on imported commodities will increase the number of dollars used in purchasing them, and might not even affect the level of consumption. Cheaper petrol in Uganda would be cheaper for the Region but it would infringe on the country’s reserves.

The president stated that the removal of taxes on some of the commodities would mean tax loss to the Government of Ugx. 1.53 trillion for petroleum, Ugx. 1.15 trillion for diesel, Ugx. 520 billion for wheat. This would put a damper on the country’s plans for good roads, stable electricity, good schools, medicine, security, and so on. He also mentioned that the government doesn’t tax every commodity, especially the crucial ones.

Some of the solutions proposed by the President are:

  • To use economically these imported items (kukekereza, kwereembareemba) or
  • To use its raw materials for the production of certain commodities.

He further states that, despite facing certain obstructions that often delay its programs, the way the country overcame the recent challenges of locusts, rising Lake Waters, Covid-19, etc., shows that it is moving towards that state of immunity from the mistakes of others. He mentioned that the rate of inflation in Uganda is great compared to other countries.

The president said that the country is self-sufficient when it comes to food such as maize, bananas, cassava, milk, beef, Irish potatoes, beans, peas, fruits, etc, which is one of the most important factors for survival in times of peril like these.

He urged farmers to not depend solely on rain-fed agriculture due to the damage it causes to its good environment by encroaching on the wetlands.

The President made these statements in a recent national broadcast. See the major highlights of the President’s speech below.

President Yoweri do not see any tax cut in sight

Countrymen and Countrywomen,

Greetings. I am here today to remind you of the challenges we have been able to face and successfully handle, together, in the last three and a half years. The following have been the challenges:

1. Locusts (enzigye);

2. The rising waters of the Lakes;

3. The landslides;

4. The floating islands that were threatening to destroy the power dams;

5. The Armyworms (kanyanaanga);

6. The Covid-19 pandemic;

7. The terrorist attacks in Kampala and the bijambiya (machete) killers in Masaka;

8. The resurgence of cattle-rustling in Karamoja and the surrounding areas;

9. And, recently, the rising costs of commodities on account of the globe recovering from the Covid-19 pandemic and the War in Ukraine.

The high commodities prices are from the following factors:

1. The end of the covid-19 pandemic, meant that sectors of the economy that had been closed, such as hotels, suddenly opened when the production of, for instance, palm oil for soap manufacture had also declined because there had been no demand for two years. The resumed production levels cannot yet match the demand.

2. I also hear, that some of the producers decided to turn their palm oil into petrol, just like we were about to turn our surplus sugar into petrol as a way of solving the problem of kyengera (surplus).

3. The war in Ukraine and Western sanctions on Russia, have also caused shortages of wheat for the bread-eaters that do not include me because I am a muhogo-karo-banana eater and milk drinker, fertilizers, petrol, gas, etc.

Again, here, we confront the struggle between the two lines: the revolutionary, patriotic line of the truth and seriousness on the one hand, and the reactionary line of populism, cheap popularity, and lack of realism of prices-control by Government, subsidies, tax cuts on the other hand.

Although this is not as serious as covid-19, the choices here, are also with serious implications. It is a choice between okubandama (collapse) of the economy on the one hand or survival (kwetaasa, kuhonoka). The real medicine for high prices and shortages is increased production. Produce more, if you can.

Shaku shaku: Shambagira (riddle). Nyabweengye, n’obweengyebwe (Each wise person has got his smart solutions to problems). What is the answer to the riddle? N’enkoko, kuchuutsya, etaine mabeere. It is the hen bringing up its chicks when it has no breasts to feed them.

Now, coming to the issue of high commodity prices of petrol, diesel, sugar, salt, bar soap, powder soap, cooking oil, etc., we have to remember the nature of the challenge: Kubandama (collapse) or survive (kuhonoka).

As already pointed out above, the problem of high commodity prices is not as dangerous as covid-19. However, if it is not handled correctly, it can lead to collapse. Yet, with patience and correct response, it will turn out to be an advantage for the country.

Straight away, a serious problem solver would cluster the commodities with high prices into two clusters: the imported ones on the one hand and the locally produced ones on the other hand.

Some of the ideas people think about when confronted with high commodity prices are the idea of subsidy (Government okutu kwatirako) or removal of taxes by the Government from those commodities. With imported commodities, this is a recipe for disaster.

It will lead to collapse. Why? Let us take the example of petrol. A liter of petrol before the rise of prices in November 2021, was Ugx. 4,590 which meant USD 1.3 at that time. A liter of petrol is now Ugx. 5,500 which means USD 1.48. This is all with the tax.

The more expensive liter of petrol (ey’obuseere), is doing two bad things: emptying the pockets of the consumers, but also emptying our national dollar reserves. We now have USD 4.5 billion in our Reserves.

These are enough to support imports for 4.2 months. If we subsidize or even just remove the taxes on imported commodities, the level of consumption will either remain the same, but this time each liter taking more dollars, or actually increase.

The dollar drain will now increase per liter and also, worse, people may buy more of this expensive commodity. With the Great Lakes area, there is another problem – smuggling (magendo). When an item is cheaper in one country, eg. Uganda, there is a powerful incentive for smugglers to buy cheap in Uganda and sell expensively in the neighboring country.

Therefore, cheaper petrol in Uganda, would be cheaper for the Region. It would seriously encroach on our reserves. Moreover, the removal of taxes on some of the commodities would mean tax loss to the Government of Ugx. 1.53 trillion for petroleum, Ugx. 1.15 trillion for diesel, Ugx. 520 billion for wheat.

How, then, do we fund our budget for – roads, electricity, schools, medicine, security, etc.? There are items we do not tax – eg. Medicine, raw materials, etc. It is, therefore, not true that we tax everything. The very crucial items are not taxed. Therefore, removing taxes or subsidizing many of the imports is suicidal and a blunder.

In my head, I had sympathy for removing taxes on locally produced goods such as sugar, milk, cement, etc. because, if People buy more of them, it will be good – they would be buying more local goods. This was until I looked at the taxes to be lost.

On sugar, we would lose Ugx.193 billion, on cement, Ugx.200 billion, mitayimbwa Ugx.120 billion. We could see that the route to tax cuts and subsidies, even for locally produced goods, was not a wise one. What, then, is the wise way? The wise ways are, therefore, the following:

1. To use frugally these imported items (kukekereza, kwereembareemba) or kubyesonyiwa (get alternatives);

2. To use our raw materials also – such as sunflower oil and castor oil (enshoga-shoga) for soap as we wait for the expanded palm oil production which takes longer – sunflower takes only 4 months; for bread, we can use our banana and cassava flour for bread-making apart from eating the traditional foods; for many years now, I do not eat wheat bread nor rice; I eat our richer indigenous foods of akaro (millet), muhogo (cassava), empogora (bananas cooked in their skin), ebinyobwa (G-nuts), obushaza (peas), enyamay’ente (beef), etc.

This leaves the problem of petrol and diesel, products for which we do not have an easy local replacement until our oil comes on stream in, 2025 with first production and the refinery expected in 2026 and we refine some of it for the final products.

Even before the war War in Ukraine, the price of fuel was going up, on account of the worry by the fossil fuels producers of the global movement for clean energy (solar, wind, nuclegeothermalrmal, hydro-power, hydrogen, etc.).

On account of that fear, the petroleum companies were, apparently, no longer exploring new reserves. Yet, the new clean energies would take time to be available.

The Russian-Ukraine war has made it worse. Just before the Ukrainian war, the price of crude was USD 80 per barrel. It is now USD 114 per barrel.

Therefore, the Ukraine war has added another USD 34 per barrel. Of course, this is an artificial addition caused by the countries of the Global North (the Bazungu) mishandling their bilateral relations and also mishandling global affairs as well. We are quietly engaging these actors to see how these actors can remove this artificial burden from the World.

Nevertheless, this artificial distortion, should not divert us from our long-distance journey of achieving social-economic transformation because that is the only way of not only increasing our affluence but also immunizing ourselves against the mistakes of others.

Despite being obstructed by some elements within Uganda that many times delay our programs, the way we have been able to transcend the recent challenges of locusts, rising Lake Waters, Covid-19, etc., shows that we are moving towards that state of immunity from the mistakes of others.

Even with the high commodity prices, we are still doing much better than many countries in the World. Our inflation has risen from 2.7% before the artificial crisis to 4.9% now.

Compare this with other countries: UK 9%, USA 8.3%, France 4.8%, Germany 7.4%, Italy 6%, Spain 8.3%, Russia 17.8%, China 2.1%, Kenya 6.47%, Tanzania 3.8%, Rwanda 10.5,% and Ghana 23.6%.

If it was not for the endless obstructions to our programs, eg. The Palm Oil project in Buvuma, Sango Bay – we would even be much better off. With our coming Oil, Uganda will be immune to external disruptions.

Working with our African brothers, Uganda and Africa will be prosperous irrespective of the actions of the mistake makers, short of using nuclear weapons among themselves which may affect the whole World.

Let us, therefore, not be diverted. We are self-sufficient in food (maize, bananas, cassava, milk, beef, Irish potatoes, beans, peas, fruits, etc.). This is one of the most important factors for survival in times of peril like these. We have good infrastructure, we have a strong Army for guaranteeing peace and we are beginning to pay our scientists well.

Nothing can stop us from growing if we work with our African brothers and sisters and other people of goodwill.

In conclusion, I repeat that the one, serious dangers to our future are: reliance on only rain-fed agriculture; damage to our environment; and a nuclear war among the mistake-makers.

During the State of the Nation Address on the 7th of June, 2022, I will touch on the issue of t “coffee deal” that was being discussed in Parliament that other day. I could see fundamental disorientation in the position of some of the speakers that were speaking in Parliament.

Uganda, indeed Africa, being in a slave relationship with external actors, is not comparable to any other factors.

To recapitulate (summarize), we need to know and do the following:

1. Subsidies for and removing taxes from imported products is definite suicide because it will deplete both the family savings and the National Reserves, leading to the inability to pay for imports because foreigners beyond East Africa do not accept the Uganda shilling as a unit of exchange. They insist on the dollar, gold, etc.

2. The correct action is to kukekereza (being frugal) – kwereembareemba or kubyesonyiwa (get alternatives for the non-oil items).

3. With the internally produced commodities, I was tempted to look at removing taxes because, with these, increased consumption would favor Uganda. However, the tax loss of Ugx. 193 billion for sugar, Ugx. 200 billion for cement, Ugx.

120 billion for mitayimbwa, would cripple our budget and the planned developments. Some of these challenges are temporary. We have been having the phenomenon of low commodity prices eg. for maize, etc. It is the continued development of the economy that will get us to the stability of a more integrated economy.

Only a few months ago, I opened a new factory of industrial sugar in Kinyara. This is the sugar, that is used in Coca-Cola as Coca-Colaugar, different from the raw sugar for raw sugar is also used for medicines like children’s syrups. Its opening was helping us to tackle the issue of surplus sugar.

There are plans to get petrol out of sugar. With that phenomenon of a more integrated economy, the instability of ekyengera with low prices today and, then, ebula with high prices tomorrow, will be tamed.

4. With petrol, diesel, and paraffin, the artificial crisis of the Bazungu has added another $34. We are engaging the involved actors on this. When we succeed here, we shall remain with the original reason of the fossil fuels being worried about clean energy sources.

That will be much better than where we are now. It is important for Ugandans to know that even when we get our petroleum, we cannot sell it below the World prices minus transport costs.

I thank you everybody for listening.

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