Thursday, May 5, 2011

THE GOVERNMENT CAN HELP IN PRICE REDUCTION IN UGANDA

The tax rates in Uganda are generally on the high. The strategies government can use to lower the cost are among others:
1. Reducing the VAT to say 13% from 18%
2. Reducing tax on fuel. A reduction of shs 250 from Petrol and 100/- from diesel is good
3. reduction of charges on Electric power. It is said that some companies have to manufacture out of Uganda what would be processed in Uganda,examples are Oil which is processed from Kenya and Coffee from Tanzania; these are cases that clearly show high cost of power which lead these industries to operate where it is relatively cheaper.
It is wrong for Government to sit back and imagine they have nothing to do when it is Government policies including the much amount of money which flooded Uganda during the elections time which NRM think tanks would have known in advance but they ignored economic sense and the outcome is there for all to see.
William Kituuka Kiwanuka

ECONOMISTS DISAGREE ON WHAT GOVT CAN DO
Written by David Tash Lumu
Wednesday, 04 May 2011 18:41

When the opposition pressure group A4C (Activists for Change) initiated the ‘walk to work’ campaign, they said their motive was to get the government to come up with real answers to the high cost of living resulting from escalating fuel and commodity prices.

However, besides violently crushing the demonstrations, there are so far no solutions. The government has scoffed at the campaign’s cause by suggesting that no one will force rain – and international oil prices – to fall by walking. Yet, Nandala Mafabi, chairman of the Public Accounts Committee, who has participated in the campaign, thinks that just like the central bank moves to control depreciation of the shilling against the dollar, fuel prices can also be tamed.
“If Bank of Uganda can trade in the market for dollars, even fuel prices can be tamed,” he argues.
And like many analysts who attended the “Tax and Governance Stakeholders” forum organized by Panos East Africa at Imperial Royale Hotel on April 27, Mafabi points out that when the dollar threatens the shilling, Bank of Uganda uses treasury bills and bonds to stabilise the situation. Similarly, the government can tame prices by using subsidies.
One of the possible measures, he suggests, is for the government to reduce the Shs 850 and Shs 530 tax levied on each litre of petrol and diesel, respectively.
“If you reduce fuel, the price of commodities will go down because, for instance, a matooke trader, who has been hiking the cost of a bunch of bananas due to high transport cost, will have no reason to give if fuel prices have been reduced,” Mafabi says.
However, President Museveni recently said government programmes will be interrupted if taxes are reduced and that high commodity prices are good for rural farmers. But Mafabi, an economist and MP for Budadiri West, disagrees. “In fact, if you reduced tax on fuel, people would have more disposable income to buy other commodities like sugar, which also have taxes levied,” he argues.
Value for tax
Everest Kayondo, chairman of Kampala City Traders Association (KACITA), says for government to minimise the public outcry, they need to account for taxes by showing how and where people’s hard-earned money is spent.
Kayondo notes that past regimes used to collect a dismal Shs 45 billion per year in taxes, but somehow used this money to build hospitals, roads, and cater for students at university, who, on top of government sponsorship, received study allowances – yet, with approximately Shs 5 trillion that government collects per year today, such goods and services are a story of the past.
“The President has been telling us that they now collect over Shs 5 trillion in taxes. He says that this is good. But on the expenditure side, what are they doing?” Kayondo wonders.
“With the little taxes collected by the past regimes, governments used to have granaries in every district, they used to spray people’s gardens free-of-charge, and also stored fuel in all the reserves.”
Kayondo also noted that the Shs 1 trillion allocated to roads over the last two years is not visible on the ground – in terms of enough good quality roads.
Prof Ephraim Kamuntu, the minister of state for Finance, says, quoting from a ruling by a British judge, Wilson Dean: “The extractions [of tax] do not constitute payment for services rendered”.
In other words, Kamuntu argues, although taxpayers bear a high tax burden expecting government to provide goods and services in return, it is not legally binding on the government to provide such services – at least going by the definition of tax.
Prof Wasswa Balunywa, the Principal of Makerere University Business School, argues that although taxpayers should not expect anything in return for taxes paid (by definition of tax), this does not mean that the public should not follow up to establish how and where their money is being spent.
Govt to blame
Balunywa, a board member of Bank of Uganda, says the government should be blamed for the current stag inflation problems because it did not warn the public about the repercussions of rushing to satisfy the food demand in neighbouring countries without working on the supply base.
“Today, we are talking about inflation, but who is responsible? Food prices are the main causes of inflation. We should have fixed the supply. Now, we have a golden opportunity for peasants to sell their commodities, but we have blown it because we never told them what to do,” he says. “I would like to blame government”.
Ugandans have been exporting food to Southern Sudan, Kenya, Rwanda and DR Congo, but due to drought, they cannot produce enough these days. Balunywa warned that the high prices of fuel and commodities are likely to continue for at least six months.
How much?
A working Ugandan who earns a salary pays 30% of his or her earnings to government as direct tax. On top of this, such a Ugandan pays indirect tax on every commodity he purchases. Additional tax is charged by government on every telephone call made.
In fact, according to Lucy Atim, regional programme coordinator for governance and globalisation at Panos East Africa, most Ugandans do not know how much they pay in taxes, or how many taxes they pay.
“It is time to demystify taxes because most people do not know these taxes, and whether or not they pay them,” she said.
Some, like Kayondo, blame the Uganda Revenue Authority (URA) for failure to widen the tax base.
“Instead of widening the tax base, they increase the tax burden. When they have collected and realize it is not enough, they come back and collect from the same person. But they should know that while you are milking the cow, you must leave something for the calf,” Kayondo says.
Micah Gaalya, a tax expert with URA, is optimistic that the tax base will widen.

“We are working on it,” he says.
Mafabi argues that the reason services have not improved despite heavy tax collection is because of wastage and misuse of taxpayers’ money.
“The government should cut on expenditure – things like districts and this purchase of fighter jets at Shs 1.7 trillion when we are not at war. Anything short of that, suffering is going to be on the increase,” he says.

Minister Kamuntu says borrowing can be an alternative to taxes, but it has conditions attached.
“There is an obligation to repay with interest, and expenditure is directed to specific sectors. Other means are grants, but they are not sustainable,” he says.
Up to 70% of the national budget is supported by taxes. The government spends tax revenue on both recurrent and development expenditures. Recurrent expenditure covers salaries of civil servants, while development expenditure deals with infrastructure development.

dtlumu@observer.ug

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