Uganda’s economy recovers but revenue dips
London, May 28, 2018 (AltAfrika)-Uganda’s economy is expected to grow at 5.5 per cent in the current financial year, against an earlier forecast of 3.9 per cent.
Director of Budget Kenneth Mugambe attributes the growth to improved food supply and recovery of the agriculture sector.
A growing economy means that Uganda, under pressure to raise more funds for its infrastructure, can borrow without reaching the East African Community’s debt ceiling of 50 per cent debt to GDP ratio.
However, there are fears that tax revenue will not follow the same path.
According to a World Bank report, Uganda’s tax-to-GDP ratio, already below the average for EAC partner states, is expected to decline further, from the 13.8 per cent registered in 2016/17 to 12.9 per cent.
This reduction also places hurdles on Uganda’s path to the EAC monetary union. The country needs a tax to GDP ratio of 25 per cent by 2021 to join the EAC Monetary Union in 2024.
Moses Kajubi, senior public sector specialist in charge of domestic revenue mobilisation at the World Bank, said that Uganda’s gross tax revenue could be below what was recorded last year since the taxman has registered higher than expected shortfalls over the past 10 months.
“Overall revenues collected by the end of the year could fail to reach that of last year,” he said.
To solve the problem of failing to grow tax revenue at the same pace as GDP, the World Bank has recommended that Uganda scraps a raft of special tax exemptions.
Rachel Sebudde, a senior economist at the World Bank said the exemptions are unnecessary as they are not a priority for anyone looking to start a business in Africa.
Uganda currently loses up to 2 per cent of tax-to-GDP ratio to tax exemptions given to fewer than 15 companies, which include Roofings Rolling Mills Ltd, Steel and Tube Industries, Cipla Quality Chemicals and Bidco Uganda Ltd.
But Moses Ogwapus, acting commissioner of tax policy in the Ministry of Finance, noted that most tax exemptions are the result of treaties Uganda has entered into with different entities, while others are important for growth.