19 June 2012

Uganda: Is Uganda Setting New Income Tax?


Kampala — While reading the FY2012/13 budget in Kampala last week, it was announced that the Pay As You Earn (PAYE) threshold will be increased from Ush130,000 ($54) to Ush235,000 ($98).

This will therefore be beneficial to the low income earners because those with incomes below Ush235,000 will not be subjected to taxation.

According to experts, this will cause a tax shortfall in the short-term, but will stimulate and reawaken the economy in the long-term.

The experts say that the whole idea is about increasing purchasing power because if teachers and nurses begin to earn more and consume more, it creates the need to expand the production sectors.

They say that after six months when people have been left with more money to spend, the economy will expand as new production lines emerge following increased demand. Yet if the Government were to succumb to the pressure to raise salaries, even a small 5% increase in salaries would further hurt the already stretched Treasury.

However, as the PAYE threshold is increased, Mrs. Maria Kiwanuka, Uganda's Minister of Finance proposed that those individuals whose chargeable income is Ush120m ($50,000) per year (Or Ush10m ($4,200)per month) will be subjected to an additional tax of 10%.

The question on many people's minds is, "Does it mean that the Ush10m a month will be subject to the normal 30% rate, then any additional income over and above the Ush10m would be subject to an additional tax of 10%?" But then again, that would be less.

Mr. Francis Kamulegeya, a Tax Partner at PriceWaterHouse Coopers while addressing a budget breakfast meeting in Kampala last week said it seems the minister did not want to say that income taxes are going up to 40%.

"The logical explanation can only be that a new tax band of 40% is to be introduced to apply to income of Ush10m per month and over," he said. However, Mr. Moses Kajubi, the Commissioner for Domestic Taxes at the Uganda Revenue Authority (URA) could not readily comment on the issue.

In fact, participants at the breakfast meeting agreed that this was a very practical and appropriate budget.

Prof. Augustus Nuwagaba, the Managing Consultant at Reev Consult International says that Uganda's main challenge has been implementation of the very good policies that are brought up.

"Now with the Minister of Finance bringing in very good proposals like value addition in agriculture and the President forming the Economic Council it will be very good in terms of prioritization," Nuwagaba said.

Mr. Gerald Sendaula, the former Minister of Finance and Chairman of the Private Sector Foundation of Uganda (PSFU) lauded the budget calling it frank and realistic.

Mr. Thomas Richardson, the Senior Resident Representative of the IMF says that the 2012/13 budget is appropriate but that more fiscal space is needed. "It is true growth has slowed and the three issues that need to be addressed are; bringing down inflation to single digits, reducing the current account deficits and the need for modest budget deficits," he said.

Uganda's 2012/13 financial year is estimated at Ush11.1 trillion ($4.6b) with tax revenues financing 69% and the balance will be aid and grants and borrowing.

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