QUESTIONS FOR QUESTION & ANSWER SESSION

2.0. INTRODUCTION
Mobilizing domestic revenues for the provision of public goods and
services through taxation helps to reduce dependence on loans and
foreign aid thus strengthening the legitimacy of the state and
deepen the social contract between governments and their
citizenry.The Government of Uganda has over the years made
enormous reforms in its fiscal management framework. Numerous
measures are rolled out by Government in order that sufficient
domestic revenues maybe generated to finance service delivery and
other development prospects.
Civil Society Organizations recognizes the need to have efficient
resource mobilization mechanisms that promote value for money as
well as generation of adequate resources to support service
delivery.
Members of Civil Society Budget Advocacy Group (CSBAG)
encourage a closer working with Government in particular Ministry
of Finance Planning and Economic Development to ensure that we
have equitable budgets with adequate resources to fund them.
There is however need for the two side to be on the same page on
issues particularly those that relate to resource mobilization and
therefore have present some questions that require your response
2.0. QUESTIONS ON TAX POLICY
2.1. Local Service Tax
Revise rates and exemptions of Local Service Tax
After the abolishment of graduated tax in 2006, Local Service Tax
(LST) was introduced in 2008 to offset the revenue previously
collected in the former. However, over the years, the revenue
generated through LST has not reached the expected targets. Its
contribution has averaged between UGX4.8billion and UGX
10.5billion in FYs 2008/9 and 2009/10, respectively far below the
targeted ushs67billion1. This has been as a result to its not being
all inclusive for instance the exemptions given to certain sections of
society like prisons, police, boda boda, judges and the army
Question

SEATINI, OXFAM, (2013) Tax policy Paper: Revenue Mobilisation at Local

Government Level for Sustained Service Delivery; Challenges, Opportunities and
Proposals.

1. Why the LST cant should be revised to include all

eligible tax payers like prisons officers, policy, boda
boda, judges and army in gainful employment.
2. Cant Government explore the possibility of reforming
LST and some relevant aspects of Graduated tax to
target other productive tax payers in the informal
sector?
2.2. Personal Income Tax
While (PAYE) continues to be a big contributor to the overall taxes
collected by URA there is, noticeable compliance related
challenges. Some employers delay remission of PAYE to URA and
instead utilize the money to run their current expenditures 2. This is
evident from the cases of enforcement actions where URA moved to
freeze accounts of MDAs, local governments and others in question
to enforce recovery of PAYE arrears.
Further, the Income Tax law provides for various forms of penalties
and fines relating to delays in payment, failure to furnish a return,
failure to maintain proper records, false or misleading statements
and understating provisional tax estimates. Many of the criminal
penalties in the income tax law, however, do not exceed twenty five
Uganda currency points equivalent to Ugx. 500,000/= or USD 137.
Questions
1. What measures is government putting place to detect
and identify employers who are not remitting
taxes/returns
2. What is the position of MFPED regarding CSOs view in
respect to reviewing the legal framework to provide for
stringent penalties against those who commit tax
related offences?
2.3. Income Tax Rent
The rental income gives preferential treatment to Companies while
individuals are not allowed to deduct expenses incurred in
production of rent. This means that companies get an advantage
and yet the get income from the source as individual property
owners.
Question:
2

SEATINI OXFAM, (2015): Fair Tax Monitor Uganda.

1. Why cant government consider reforming this tax to

make it uniform for all tax payers even if it means
raising the percentage charged?
2.4. Non Tax Revenue
Non-Tax Revenues are not included in consideration of Tax to GDP
ratio revenue collected despite being collected by the URA. The
rates of non-tax revenue on key statutory instruments like land
titles, court orders, powers of attorney have been static over time,
recent changes in tax policy have been geared towards raising such
rates to depict current economic conditions but more is still desired
if more revenue is to be realized whilst ensuring equitable
redistribution of income amongst citizens.
Questions
1. What plans does Government have to revise rates and
where possible reform the NTR?
2. What is MFPED position on entitles that utilize NTR at
source in the advent of PFMA 2015?
3.0. TAX ADMINISTRATION ISSUES
3.1. Enhancing Revenue mobilization through electronic
transactions
Most Countries in the region such as Kenya, Ethiopia among
others have institutionalized mandatory use of digital
gadgets by business persons to issue receipts for goods
and a service using a platform that communicates with
Revenue service body (the equivalent of URA).This
reduces the cost of tax administration and also broadens
the tax base.
Question
1. Has the Government ever explored developing or acquiring such
systems?

3.2. Availability and Accessibility of Tax-Information

With the growing taxpayer register which currently stands at
786,000 (URA, Database), it is estimated that 90percent of the

taxpayers are reached annually while an approximately 4m of the

general public access IEC tax materials on new rates and collection
systemsi. It is also important as a matter of accountability to
establish a close match in the declarations by companies in term of
revenue paid and what is actually reported by the revenue agencies.
There is no regulation that requires companies to display their
financial statements and submit to the national business registries.
However such companies are required to send such information to
the Uganda Revenue Authority as a requirement by law.
Questions
1. Why cant government to put in place mechanisms that
require companies to display their financial statements
as well as information they have submitted to Uganda
Revenue Authority.
2. Why Cant URA partner with URSB to harmonize filing
of returns under The Companies Act and tax laws to
cure the loop holes that exist in under declaring of
returns or financial performance generally?
3.3. Evasion of Corporation Tax
Many firms manipulate their books of accounts and declare losses
to URA in order to avoid payment of corporation tax.
Question
What is that is the position of MFPED on the following
proposals from Civil Society.
1. We propose that any company that reports losses for
three consecutive years should pay a turn over tax as is
done in some EAC countries like Tanzania.
2. We also propose a 1.5% presumptive tax per annum on
gross income earned by perpetual loss declarants.
4.0. INCIDENTAL CONCERNS ON TAX POLICY
4.1. Encouraging acquisition of First hand Automobiles
CSOs have consistently proposed to government to implement an
upward revision of the Environmental Tax on used motor vehicles
from 20% to a maximum of 50% with a view of encouraging
Ugandans to buy new vehicle and discouraging them buying old
ones with high emission levels which was adopted. However, the
purpose for which the proposal was meant has failed because
Government has continued to charge a 20% Environmental levy

even on new cars and this, compounded with the already high price
of new vehicles, has continued to make new vehicles more
expensive compared to used ones. Although this action has hiked
the price of used vehicles beyond their real value, it has not
discouraged the buying of used vehicles.
Questions
1. Could Government explain the justification of the shift from a
20% to 50% environmental levy in its present state of affairs?
2. Why cant the tax regime promote acquisition of new
automobiles as both a sustainable transport facilitation
measure and environmental protection?
4.2.Tax Exemptions and Incentives
Ugandans have been concerned about tax
exemptions that are not beneficial to the economy.

incentives

and

Question
1. What is the status/Value for exemptions and incentives
so far for FY2015/16?
2. Can CSOs benefit from details of investments are
benefiting from such

5.0. GRANTS AND LOANS

5.1. Introduction
Uganda like other Sub-Saharan countries was not spared by the
debt crisis in 1980s through the 1990s. The country suffered
dramatic decline in export receipts due to falling coffee prices and
unfavorable terms of trade and high level of donor financed
development expenditure; leading to default on debt repayment 3.
This led Multi-lateral institutions i.e. the World Bank/IMF in the late
1990s and early 2000s to offer debt relief and restructuring as a
result of lobbying from local and international Civil Society groups;
which freed up resources for allocation towards poverty
3

Ochieng J. B. etal. 2014. External Debt and Economic Growth in the East
African Community. African Journal of Business Management. Pg. 1

eradication. Currently, there are concerns about the rate of rising

debt stock, its utilization, performance and Management which
raises questions on whether resources are being used optimally and
productively to generate sufficient revenues in future to repay the
loan.
5.2.Debt Growth rate Vs Economic growth
Preliminary results of the 2015 Debt Sustainability Analysis show
that the public debt-to-GDP ratio will increase from 24.1% by June
2015 (NBFP, FY 2016/17FY 2020/21) to about 33.9% in FY2018/19
and FY2019/20. This partly signifies an increase in debt levels. The
fiscal strategy of the Second National Development Plan (2015/16
2020/21) also is expected to widen the budget deficit to nearly 9%
of GDP for three years from FY 2015/16 before it reduces to about
7% in FY 2018/19. All this is within the context of a slow economic
growth rate and low tax revenue collection framework 4. While the
borrowing rates for Ugandas concessional debt, mainly from
multilateral lenders such as World Bank and AfDB, is below 1%,
more recent borrowing from bilateral countries and institutions is in
the range 4-6%, largely on non-concessional terms. More
significantly is the domestic borrowing that ranges from 14-18%
compared to average GDP growth rate that has reduced to less than
6% over the last three years. Yet, for an economy to gain debt
sustainability over time, it should grow at a rate higher than
interest rate of the debt.
Question
What measures does the Ministry have in place to mitigate
the mismatch in Ugandas growing debt and GDP growth?

5.3. Low Loan Absorption Capacity

Ugandas debt is expected to reach beyond US$9.0 billion by end of
FY 2015/16, yet some loans are characterized by non-performance.
The Auditor General (AG) in several reports has raised same issues
relating to low absorption capacity since FY 2009/10 resulting from
4

A sizeable domestic revenue is a necessary buffer for enhanced fiscal space and
better income distribution

poor project management, procurement related challenges and poor

financial management among others. Besides, Government has a
track record of accumulating undisbursed loan amounts which
increased from US$0.98bn FY 2006/07 to US$ 2.47bn representing
56% by end of March 2014. This attracted commitment charges
which increased by about 164% from USD 1.75mn in FY 2007/08 to
USD 4.7mn paid out in FY 2011/12 5. Yet, another USD 3.5mn was
paid out in form of commitment fees by the end of March 20146. The
Auditor Generals Report (2015) again highlights the persistent
challenge of low absorption of external debt indicating that, the
national debt portfolio was still underperforming with absorption
levels below 50%. Debt service characterized by high interest
payments increases a countrys budget deficit which discourages
growth by diverting public resources available for investment and
also reduces public savings. In addition, the high costs of domestic
borrowing unduly raise the domestic interest payment bill.
Questions
a) What is the Ministrys position on the sustainability of
this borrowing trend?
b) What measures is the ministry undertaking to reverse
this trend?
5.4.Front-loading of debt on the basis of revenue from
extractives
The discovery of oil, gas and other extractives has increased the
countrys appetite to contract debt thereby increasing its future
financial obligations. A significant number of oil-development
related projects are being financed on a reimbursement basis
(recoverable costs) while decisions on other infrastructure projects
is also related to future oil revenues. For example, discussions on
possible reduction of electricity costs arising from the related
financing charges have hinted on use of oil revenues to restructure
the loan by acquiring alternative debt. On Bujagali, which is a
250MW hydropower plant that cost nearly US$ 900 million, the
President, in his State of the Nation Address to Parliament on 4th
June 2015 said We are going to engage the developers to find ways
of refinancing this project. With our oil money, this should be no
5

MoFPED. 2015. Report on Public Debt, Guarantees, other Financial Liabilities

and Grants. April.
6
MoFPED. 2014. Report on Public Debt, Grants and Guarantees. June.

problem. Recent trends in the international price for a barrel of oil

indicate a downward movement (below $30 a barrel by January
2016)7. With rising production costs affecting the profit margin, this
raises uncertainty about the use of future oil revenues with regard
to debt management. The reliance on future revenues from oil and
other natural resources such as gas to service already acquired
debt needs to be factored into the analysis of debt sustainability
since it is already driving debt acquisition. The reliance on future
revenues from oil and other natural resources such as gas is already
driving debt acquisition.
Question
How prepared is the Ministry of Finance to meet such
financial obligations especially since there is no clarity on the
actual date when oil will begin to flow in Uganda with
uncertainty in projections of future prices which is likely to
undermine oil-related debt sustainability?

5.5. China - A New Bilateral Creditor to Uganda:

The new emerging trends in the supply of credit by private
creditors (especially China) and a shift away from poverty
eradication to financing economic growth for development denote a
paradigm change in the debt subject (MEFMI 2014).In the span of
less than a decade, China has become an important creditor to
Uganda. For example, between 2005 and 2013, Chinas proportion
of total outstanding debt holdings went from 0 percent to 8 percent
in Uganda, (CIGI, 2014). China is financing construction of several
large infrastructure projects, such as hydroelectric dams, paved
roadways, railway systems, and more (Bategeka et al. 2014).
Questions
a) While there are opportunities associated with Chinas
unmatched
capacity
to
finance
large-scale
infrastructure projects, how is the Ministry prepared
to avert the risks of such new borrowing e.g. new
forms of dependency, the potential exploitation of
domestic natural resources, the familiar dangers of
over-borrowing and challenges to the effective
management debt.
7

http://www.bbc.com/news/business-35245133

b) What are the implications in case of default

especially since such credit bi-lateral relations are
not governed by international frameworks?
5.6. Lessons from the Greece crisis:
The Government of Greece engaged in high government spending
and social orientation coupled with the free flow of trade from other
European Union states. This reduced production in the country
while fuelling consumption of imports. Uganda too has elements of
uncertainty about the actual stock of debt due to limited
incorporation of domestic arrears including pensions due to retired
civil servants, unpaid service providers and court awards. The
Statistical Abstract (2015), indicates that in 2014, the country
experienced the highest trade deficit of US$ 3,462.8 million in
comparison to the previous four years with overall export earnings
declining by 5.4 percent compared to the year 2013. Consequently,
consumption of imports is currently higher than exports hence
reducing foreign exchange accumulation which is what Greece
experienced.
Question
What measures are in place to mitigate debt unsustainability
with regard to lessons from the Greece experience based on
high imports, inaccurate debt information; moreover Uganda
has a low tax revenue to GDP at 13%8, compared to the
average of 20% for Sub-Saharan Africa9?
6.0. STATUTORY FUNDS
Operationalisation and management of statutory funds.

http://mobile.monitor.co.ug/Business/URA-records-biggest-revenue-shortfall-indecade/-/1055106/2571464/-/format/xhtml/-/11g9xen/-/index.html
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http://www.monitor.co.ug/Business/Prosper/2013-14-budget-preview--Ugandansto-face-tough-financial-year/-/688616/1851124/-/kgyl1k/-/index.html

Uganda has created a number of national funds through

legislation which include The Road Fund, The Land
Fund, The National Tree Fund, The HIV/AIDS Trust Fund,
and The Petroleum Fund among others.
Questions
1. What is the operational status of these funds?
2. What are the key challenges faced in resource mobilization for
these funds and how is government addressing them
7.0.MISCLLENOUS QUESTIONS

1. What plans does government have to finance HIV and TB

supplies to meet the treatment needs for all PLHIV? Last
financial year, 84 billion shillings was allocated for HIV
medicines, 10 billion shillings for malaria and 5-6 billion for
TB. Of the 600,000 PLHIV in the public sector, money from
GoU can only support 150,000. This shows clearly that
money available is not enough unless something is done to
increase the funding. The first consignment of Global Fund
medicines was expected in Nov 2015 but this only gave
temporary relief. Currently, more funds are required to cater
for 229,000 patients who should be on treatment.
2. There has been a report that only 20% of Global Fund monies
have been utilized due to irregularities as cited in the draft
audit report. This has affected supplies for TB and HIV and
application for more grants. What plan does government
have to increase absorption of funds for HIV and TB?
3. The country needs $92 million to procure ARVs for FY
2016/2017 now since procurement takes about 6 months. In
order to avoid stocks which will affect adherence of People
Living with HIV and cause drug resistance and death, what
plans does the Ministry have to mitigate the likely
consequences if this money is not got.
4. The current GDP assessments for the country do not factor in the

contribution of some the natural resources. Does government have

a strategy to compute the contribution of natural resources to GDP
so that the full potential of the country is well represented? For
example, we all know that water is a critical factor in many social
and economic processes and yet its contribution to GDP is not fully
known. There are isolated reports that suggest that 48% of water
is used in Agriculture to produce 23% of GDP in Uganda or 34% of
water is used in manufacturing to produce 4.6% of GDP in
Uganda. Livestock is reported to contribute 3.4% to GDP. There

are varying figures on the contribution of manufacturing to GDP in

Uganda. So the question is what about the other natural
resources e.g. forests, wetlands, industrial minerals, hard
metal minerals, land, wildlife, etc? Does Uganda have
reliable data in respect to the contribution of all natural
resources to GDP?

5. In 2011, through an innovative approach called Contractor

Facilitated Financing (CFF) mechanism, which is a form of
PPP, UNRA sought to bring on board contractors who would
organize independent funding of road projects. Government
through MoFPED was to enter into commercial contract with
such companies and commit to repay the contractor in a
specified period and specified installments on completion of
the project. Later on, Parliament objected to the whole
arrangement of CFF arguing that it would leave the country
indebted in the long run, let alone contractors were likelihood
of inflating the costs leading to exaggerated bills and costly
roads. MoFPED therefore halted the CFF mechanism
directing UNRA to stop the scheme forthwith. URSSIs
concern is that under the new management of UNRA, many
projects are lined up to be financed through PPP. These
include the Kampala-Jinja and Kampala Mpigi expressways
(the two projects will cost more than 2Billion Dollars) among
others.
Question is: Has MoFPED given a leeway to UNRA to
borrow through PPP. Wont this escalate Ugandas
already worrisome debt burden? Why is UNRA suddenly
embracing PPP yet it has a fair share of the national
budget. What has changed to warrant sudden change of
heart on the part of government towards PPP?

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