My previous article highlighted the good side of the 2007/08 tax proposals. The following pronouncements, however, have moderate or limited implications: termination of the government support to hoteliers, introduction of a fixed levy of $0.25 per kg replacing a 15 per cent levy on exported raw hides and skins, introduction of a 10 per cent levy on used motor vehicle spare parts, harmonisation of visa fees, abolishing transit parking yards, reduction of import duty on buses for the transport of more than 25 persons at a reduced rate of 10 per cent instead of 25 per cent, some tax waivers and payments and the review of the excise duty law.

This article will concentrate on the changes that are likely to have negative effects and highlight the areas that government should have addressed -- in my opinion. As expected, having abolished road licence fees, the government's alternative compensating area was duty on fuel. We saw increases in excise duty on petrol of Shs130 from Shs720 to Shs850 per litre and on diesel of Shs80 from Shs450 to Shs530.

The above are not small increments and may bring significant upward movement in transport fares. The increase in transport fares will result into high commodity prices, which will in the short term contribute to increased poverty among ordinary folks. One would have expected moderate changes given that our fuel prices are the highest in the region.

The government became tough on buveera (polythene paper bags) in an effort to implement the agreed regional position on environmental concerns. The government banned importation and production of plastic bags of less than 30 microns with effect from July 1, 2007 with a transitional period of up to September 30, 2007 to allow for clearance of the products in stock.

Also, excise duty of 120 per cent was imposed on the plastic bags other than the above. This will go a long way in solving the environmental problems associated with buveera but in the short term the move may have negative effects on employment, for instance. So there is a trade off.

On the side of local government revenue, the government introduced Local Service Tax. The tax is to be levied on wealth and incomes of: people in gainful employment, self employed and practising professionals, self employed artisans, businessmen and women, and commercial farmers with exemption of importantly unemployed persons, peasants and people living in poverty who are unable to earn minimum income to access basic necessities of life.

Even before the Minister of Local Government comes up with a Bill on the tax, the above arrangement on the face of it smells of double taxation. The persons listed above are the ones that are currently captured by income tax as individuals or through PAYE for those in formal employment. Does it make sense that the same people are being targeted by this tax?

Most likely the tax will also have a similar mode of collection as graduated tax. Hence, it looks like graduated tax in a mask for all intents and purposes. Another new tax is the Local Hotels Tax. This may be a revenue spinner, given the mushrooming number of hotels, guest-houses and lodges.

The main challenge, however, will be the criteria or mechanism, which the local authority will use to establish all hotel and lodge room occupants at any given time. Will they employ auditors, resident monitors or will they require hotels to make returns?

Would they tender out the service such that officials pitch camp at all these establishments to monitor who and how many people are sleeping where? The fear regarding this tax is that it may increase the cost of these establishments and erode the benefits gained under the government's effort to promote tourism.

Having looked at the above proposals, below are some of the areas that required to be revisited. Over the past years, there has been strong agitation for the increase of the threshold for PAYE - which has been fixed at Shs130,000 since 1997.

The threshold should reasonably be at least Shs250,000 so as to spare the low income earners. Secondly, to encourage savings, employees' contributions to pension funds like NSSF should be exempt, mortgage payments out of employment income, for purposes of employees' acquisition of homes should be exempt and interest income earned by individuals on savings and fixed deposits accounts should also be exempted from tax.

In line with the government's policy to promote the ICT industry, the supply of computers and accessories should be zero rated to make their prices cheaper and accessible to many. Exemption is not the favourable option.

The author is an Associate Consultant at Q - Sourcing Limited, and a former Tax Officer at the Uganda Revenue Authority.