WHAT DOES THE BUDGET MEAN TO SMALL AND MEDIUM ENTERPRISES (SMEs) IN UGANDA?
TAX PROPOSALS AND AMENDMENTS
The new income tax amendments have several implications for the Small and Medium Enterprises
A. INCOME TAX
1. Registered taxpayers who obtain credit facilities from SACCOs, non-deposit-taking microfinance institutions, self-help groups, and community-based microfinance institutions can now deduct all interest on loans as a business expenditure when calculating their taxable income for the respective year.
Comment:
With this amendment, businesses can now acquire loans for entities that have favorable interest rates and are less bureaucratic This also reduces the taxable income to be remitted in the taxable period of the taxpayer
2. Removal of Initial Allowance. The IA has been amended to remove the deduction of the initial allowance. Currently, a taxpayer who brings eligible property or an industrial building into service for the first time outside the radius of 50 Kilometers from the boundaries of Kampala in a given year, is allowed a deduction for that year, of an amount equal to 50 percent of the cost base of eligible property or 20% of the cost base in case of an industrial building (initial allowance). The initial allowance was put in place to attract persons to invest in areas outside Kampala.
Comment:
A taxpayer who has invested in eligible property or industrial building outside Kampala will no longer enjoy the benefits of claiming 50% deductions in the assets’ first year of use; or 20% deduction in the first year of use of an Industrial building. This will eventually lead to a higher chargeable income and higher tax payable in the first year such assets are put into use
2. Bank agents’ commissions will be subject to a withholding tax of 10% to align with the tax treatment applied to other similar business entities like mobile money agents.
Comment:
Agent bankers should acquire withholding tax certificates from designated licensee banks that can be offset against their taxable income.
B. VALUE-ADDED TAX
1. Local manufacturers of animal feeds and premixes are now exempted from supplying concentrates and cake seeds.
Comment:
Local SMEs that are dealing and those that wish to deal in manufacturing animal
feeds and premixed will not be required to Charge VAT on the feeds sold and this will also
ease the cash flow prospects of a taxpayer and reduce the rate of non-compliance.
2. Non-resident taxpayers can now file returns and pay taxes in United States Dollars to
facilitate compliance for non-resident taxpayers operating in Uganda
Comment:
This measure aims to streamline tax procedures for foreign individuals and businesses. Furthermore, Local SMEs can grab this opportunity to operate in Uganda and not be obligated to pay taxes in foreign currency thus managing the inflation disadvantages
3. Foreign remote providers of electronic goods and services are now required to account for
VAT on goods and services sold in Uganda, bringing e-commerce transactions into the tax system. The scope of electronic services subject to VAT has been expanded to include, among others, films, games of chance, advertising platforms, streaming platforms, cabhailing services, cloud storage, and data warehousing.
Comment:
SMEs in many internet-related initiatives that intend to start up e-commerce platforms will be affected by this new amendment. They will be required to be licensed to charge VAT on the services they provide. This step ensures that e-commerce businesses contribute their fair share of taxes to the Ugandan economy.
C. EXCISE DUTY
The amendment removes the excise duty of US Dollar 9 cents per minute on incoming international calls, making Tanzania part of the One Area Network, along with other East African Community member states. Phone users within the One Network Area can now make and receive calls at local rates, regardless of their location.
Comment:
As SMEs, they can now make interstate calls for business-related matters with ease and comfort.
TAX PROCEDURES ACT AMENDMENT
1. Interest and penalty waiver on payment of outstanding principal tax as at 30 June 2023 by 31 December 2023. Furthermore, the Act provides that interest and penalty will be waivedon a pro-rata basis if a taxpayer makes part payment of the principal tax by 31 December2023.
Comment:
This presents a cash flow opportunity for a taxpayer to remit less tax to the tax authorities and also clear all their outstanding tax arrears with ease. In addition, this is a voluntary disclosure strategy to improve compliance.
2. Tax waiver on the irrecoverable outstanding tax. Previously the Minister would approve waiving tax from a taxpayer with sufficient proof it was irrecoverable. However, the Minister shall, with the approval of parliament, remit in whole or part, the outstanding tax by the taxpayer
Comment:
This is to promote transparency and promote objectivity regarding the approval of the waiver incentives. However, the taxpayer should have well-kept books of accounts for a fair hearing on the matter.
3. Tax stamp-related offenses. Any person that tampers with a tax stamp machine without official authorization is liable to pay the sum amount equivalent to the tax loss, conviction for 10 years in prison, a fine not more than shs 100 million, or both. This is applied to all taxpayers dealing with excisable goods
Comment:
SMEs that have implemented the Tax stamp machines should enforce quality internal control mechanisms that detect any inconsistencies in the tax stamping process.
4. Order of payment. This has been in such a way that upon the outstanding tax, the order will be as follows;
- Payment of the principal tax at the date of payment
- Payment of the penal tax
- Payment of the interest
The balance will be applied to the penal tax and interest upon completion of the
outstanding principal tax
Comment:
This means that the taxpayer’s tax burden will be reduced to a relatively lower threshold that could be managed This has been serious usually when it comes to filling returns and a taxpayer makes a payment to offset the tax the generated PRN but the URA system would offset the interest and penalties of a previous outstanding tax.
5. Fixation of tax stamp of wrong goods. The act provides for one to be penalized a fine not exceeding shs 100 million or imprisonment not exceeding 10 years or both for fixing a wrong tax stamp on a good that is not designated for the product.
Comment:
This is also another compliance strategy and revenue growth by the Uganda Revenue Authority. Therefore, a taxpayer should have designated and qualified personnel with integrity to handle the fixation of the stamps on the appropriate goods.
INTRODUCTION
This budget theme for the financial year 2023/24 is; “Full monetization of Uganda’s Economy through commercial agriculture, industrialization; expanding, and broadening services, digital transformation and market access”
The projected GDP growth for the financial year (2023/24) is expected to increase from 5.3% in the previous year (2022/23) to 6%. The budget for the new financial year will focus on these areas for financing:
- Digital transformation
- Human Capital Development This has been allocated the biggest lion’s share of the budget amounting to Shs 9.7 trillion shillings
- Governance and Security with Shs 7.8 trillion
- Agriculture, with measures to ease access to agricultural financing and promote value addition
- Oil sector development
RESOURCE ENVELOPE
The resource envelope for the financial year largely provided an overview of how the GDP is yet to be impacted
FOCUS AREAS OF THE BUDGET
1. Boosting household incomes and micro enterprises
The Parish Development Model (PDM) will boost household incomes as well as the development of micro-enterprises. Since the launch of the PDM in February 2022, a total of Shs. 590.2 billion has been disbursed to all the 10,459 parishes nationwide, 13 into shs. 50 million per parish. The balance will be disbursed by the end of this month. Next financial year, the Parish Development Model has been allocated Shs. 1.1 Trillion. This initiative spearheads the theme of this budget 2023/24. The Emyooga initiative will further boost household incomes and micro enterprises at parish and sub-county levels by directly funding parish and sub-county level enterprise groups. By March 2023, seed capital worth shs. 249 billion had been disbursed to 6,721 constituency-based Emyooga SACCOs. Over 600,000 individuals had successfully applied for credit from their Parish-based Associations. Nearly half (46%) of these were women, youth (25%), and PWDs (4%). These SACCOs have also mobilized savings of shs. 76 billion, and a further shs. 80 billion was recovered from the loans given to beneficiaries.
This demonstrates the sustainability of the Emyooga initiative. Next financial year, shs. 100 billion has been allocated to the Emyooga initiative. To grow local enterprises, 19 skilling centers have been established across the country under the Presidential Industrial Hubs initiative. So far, 28,750 trainees have completed training in skills programs and 6,110 are undergoing training in various fields.
This initiative has also empowered the ghetto and less privileged urban youths across all five city divisions through 9 skilling centers in Kampala Capital City Authority. These include Wandegeya Market, Mulago Community Hall; All Saints Church of Uganda Mutundwe; Our Lady of Fatima Catholic Church Nakulabye; Luzira Prisons; Sub Way Crested Towers; Wabigalo Parish Community; Butikirwa Kigoowa Ntinda; and Makerere Community Hall. This support will continue over the medium term, shs. 60 billion has been allocated for skilling the youth in the next financial year.
2. Commercializing Agriculture.
During this financial year, additional funding amounting to Shs. 110 billion was provided for food security interventions in Government institutions with farms including the UPDF, Uganda Prisons, the Ministry of Agriculture, the National Agricultural Research Organization, and the National Agricultural Genetics Resource Center and Databank. The priority actions to commercialize agriculture next financial year include the following:
i. Support agricultural research for the development of climate-resilient crops and animal species;
ii. Promote environmental conservation, restoration, and protection of degraded water catchment areas and forest cover;
iii. Construct small, medium, and large-scale irrigation schemes in water-stressed areas. These will include the construction of earth dams at Unyama in Gulu, Namalu in Nakapiripirit, Sipi in Bulambuli, and Kabuyanda in Isingiro, among others;
iv. Implement large-scale mechanization and irrigation
v. Improve farmer mobilization, education, and partnerships with large commercial farmers for the production of strategic commodities, such as coffee maize, and tea to meet national and international demand.
UShs. 2.2 trillion, has been allocated for food security, irrigation, climate change mitigation, value chain development, agricultural research, and disease control, among others.
3. Supporting Private Sector Growth.
The private sector has been directly supported through industrial parks’ development, promoting Small and Medium Enterprises (SMEs), and facilitating tourism.
i. Industrial Development and Investment. Eight government-owned industrial parks are currently operational. These are Namanve, Jinja, Bweyogerere, Mbale, Soroti Mbarara, and Kasese, Luzira. Uganda’s global reputation as an investment destination has been boosted significantly in the recent past. Uganda has been named the Number One investment destination in East Africa, by the AIM Global 2023 Abu Dhabi. In
addition, the country has been ranked among the top ten African countries for best investment destination in Africa by the African Development Bank.
ii. Small and Medium Enterprise Development. SMEs in the manufacturing and export sectors will be supported by the US$ 200 million World Bank Investment for Industrial Transformation and Employment (INVITE) Project that will provide grants and concessional credit to qualifying SMEs. This intervention aims at increasing Ugandan manufactured export products, generating direct and indirect jobs for more than 200,000 workers, and safeguarding existing jobs for 530,000 workers. Allocation of shs 209.3 billion has been provided through the INVITE Project for the next financial year.
iii. Tourism. Uganda has increasingly been recognized as a tourism destination and is ranked by CNN as one of the top 10 best tourist destinations in the World. We will continue to promote domestic and inbound tourism, including the use of digital platforms. Uganda will also be marketed as a global and regional center for Meetings, Incentives, conferences, and Exhibitions (MICE). Hospitality standards will be enforced through licensing, grading, and classification of tourism facilities. Shs. 249 billion has been allocated for the promotion of Tourism. All the private sector interventions detailed above have been allocated Shs. 2.4
Trillion.
4. Investing in People.
Uganda has registered visible improvements in healthcare outcomes, access to knowledge, and a decent standard of living. On average, a Ugandan now lives longer – 64 years up from 53 years just as recently as 2015, attains more years of schooling, and enjoys a higher income per capita than ever before.
I. Health. Access to health care by Ugandans remains a key priority. Consequently, 381 Health Center IIs have been upgraded to Health Center IIIs. In addition, 250 Health Center IIIs have been upgraded to Health Center IV and equipped, and are now functional, largely supported by the Uganda Intergovernmental Fiscal Transfers Program (UGIFT), which is co-funded by the World Bank. Construction and equipping of 31 new Health Center IIIs in sub-counties without any health facility is 90% complete. The health referral system has also been enhanced by fully functionalizing 143 Intensive Care Units (ICUs) and 5 High Dependency Units (HDUs) in National and Regional Referral Hospitals across the country.
II. Education. Registration of significant progress in access to education. Uganda’s literacy rate improved from 70.2% in 2012 to 79% in 2021. Education enrolment in public schools is now 8.8 million children in primary school, 833,000 pupils in secondary, and 174,000 students in tertiary institutions. 50. To improve the delivery of the recently launched curriculum, 3,100 teachers were trained, and inspection of learning institutions was enhanced using the e-inspection system.
III. Safe Water. The national water coverage for safe and clean water for human consumption now stands at 70%, with 67% in rural areas and 72% in urban areas. 18 56. In rural areas, gravity flow schemes have been completed at Lirima in Manafwa, Lukalu-Kabasanda in Butambala, and Nyabuhikye-Kikyenke in Ibanda. Piped water systems have also been constructed at Nyakabingo in Rukungiri, Kabuyanda in Isingiro, and Orom Water Supply System in Kitgum-Lamwo. In addition, 40 solar-powered mini-piped schemes serving 173,000 persons have been constructed across 15 least-served districts including Lyantonde, Sembabule, Yumbe, Rakai, Buyende, Kamuli, and Kakumiro. In urban areas, 9 Piped Water Supply and Sanitation systems have been completed in Dokolo, Padibe – Lamwo, Odramacaku -Arua, Kagadi, Morulem, and Alerek (Abim), and Kambuga II – Kanungu.
5. Enhancing Infrastructure Stock and Quality.
The stock and quality of infrastructure is a key enabler for economic growth, development, and social transformation.
i. Transport Infrastructure. Transport infrastructure development has been a major hallmark of Uganda’s recent economic development. The road sector in 1986 totaled 7,900km. Today, it has expanded twenty-fold to almost 160,000 km. While only 6,700 km of today’s road network is paved, the road network now allows access to even the remotest parts of Uganda. 19 62. Next financial year, we will substantially complete 16 national road projects including AtiakLaropi, Moroto-Lokitanyala, Kawuku-Bwerenga, Namugonde-Bugiri, Nsambya-Mukwano, the Kampala Flyover and Rushere Town and Kyamate Access roads. In addition, priority will be accorded to the maintenance of existing road networks, both national and District Urban and Community Access Roads (DUCAR).
ii. Power Infrastructure. Power generation, transmission, and distribution infrastructure have continued to expand. Generation capacity increased to 1378.1 MW as at March 2023 from 1,343.9 MW in March 2022, an increase of 34.3 MW. With the commissioning of the Karuma Hydropower Project planned for September 2023, generation capacity will increase to 1978 MW. The 6 MW Nyagak III Hydropower project is also due for commissioning by the end of this month. 69. In transmission, a total of 417 km of transmission lines were added to the main grid during the year, bringing the total transmission line network to 4,011 Km.
iii. Digital Transformation. Turning to Digital Transformation, 4,717 km of optic fiber has been laid across the country. Geographical coverage of broad Band services (3G) stands at 66% and 25 broadband sites have been upgraded to 3G providing services to over 700,000 Ugandans. Free Wi-Fi hotspots have been established at nine border posts namely Lwakhakha, 21 Mpondwe, Mutukula, Busia, Vura, Katuna, and Elegu. 73. Next year, WiFi will be deployed to 820 locations, targeting schools, hospitals, and markets in the selected subregions. The Greater Kampala Metropolitan Area network will be upgraded to monitor service provision over the national backbone infrastructure. We will also digitally transform public service delivery by connecting all essential services, such as schools, hospitals, tourism sites, and the police to the national backbone. An allocation of shs. 192 billion has been provided to accelerate digital transformation.
6. Expediting Strategic Initiatives.
The development of the oil and gas sector, the beneficiation of minerals, and investment in science innovation and research are key strategic initiatives that will significantly support that socio-economic transformation.
i. Oil and Gas. The final investment decision for the development of the East African Crude Oil Pipeline was taken on 2nd February 2022. We are fasttracking the construction of the East African Crude Oil Pipeline (EACOP) and the National Oil Refinery. In addition, the right of way for the Kabaale (Hoima)
– Buloba refined products pipeline, and the financing for the refinery and associated infrastructure will be concluded. Preparatory work for the development of a petrochemical industry at the Kabaale Petro-based Industrial Park will also be expedited. UShs.447 billion has been allocated to fast-track the development of petroleum resources next financial year. Science, Innovation, and Research Government is supporting several innovation and scientific research initiatives that will propel Uganda’s industry into the high-technology economy.
These include;
- Vaccines research and development, including therapeutics and diagnostics to enable Uganda to enter into the Pathogen economy (i) automotive industry technology development, and (iii) chipset and robotics manufacturing. During this year, the salaries for scientists were enhanced by shs 508 billion
- Mineral Beneficiation. Uganda is to reap the benefits of minerals resource; Uganda’s mineral deposits will be quantified to ascertain their value before beneficiation. We shall also operationalize the recently approved mineral legislation to regulate Artisanal and Small-Scale Miners (ASMs). For the development of Minerals, an allocation of shs. 54.3 billion has been provided.
7. Maintaining Security, Good Governance, and the Rule of Law.
Security, good governance, and the rule of law are the bedrock for the success of our socio-economic interventions. To guarantee the security of persons and property, the capacity of security and intelligence agencies will be strengthened to address any security threats and build national defense capability. In order; to enhance good governance, Parliament’s legislative and oversight role will be strengthened to ensure the proper use of public funds, among others. Furthermore, we will ensure compliance with rules and regulations in public financial management, and implement Parliament’s recommendations on the use of public funds as well as improve the efficiency and effectiveness of Government, we will further automate financial management systems. These include the Program Budgeting System for budget preparation, monitoring, and reporting; the Integrated Financial Management System for budget execution, the Human Capital Management for personnel and payroll management, e-Government Procurement, e-Passport, and the one border posting among others
