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{UAH} Allan/Gook/Pojim: Uganda’s deficit grows as business bites harder

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Uganda's revenue deficit grew by nearly Ush53.5 billion ($14.7 million) to Ush457.51 billion ($125.8 million) by the close of 2016/17 due from a depressed economy that expanded by just 3.9 per cent.

The deficit amounted to Ush404 billion ($111 million) at the end of 2015/16 after a spell of low economic growth that recorded 4.8 per cent against a target of 5 per cent, minimal government expenditure and weak consumer demand.  

Economic growth fell below target by 1.1 per cent during 2016/17, an outcome that highlighted the decline in business activity across many sectors.

Latest Uganda Revenue Authority data shows the taxman collected total revenues of Ush12,719.63 billion ($3.5 billion) against a target of Ush13,177.15 billion ($3.6 billion) in the past financial year.

But further analysis of the revenue shortfall revealed that lower than expected growth contributed Ush236.69 billion ($65 million) to the tax deficit, amid reduced output by several firms and falling profit levels.

Internal URA performance analysis indicated Customs taxes posted a bigger shortfall compared with domestic taxes, with the former accounting for roughly Ush388 billion ($106.7 million) of the overall deficit.

Weaker Customs revenues are mainly blamed on low demand for import items including fuel — a product that accounts for nearly 15 per cent of annual import volumes, economists say.

Besides diminished growth, muted expansion in private sector credit flows similarly weighed down the performance of various local businesses. Private-sector credit increased by four per cent in 2016/17 compared with the 14.7 per cent growth posted in 2015/16, government data shows.

Signs of economic slowdown were particularly evident in the telecommunications sector as mainstream players suspended major capital expenditures on their networks, amid declining voice revenues and modest growth in data sales.

"We observed that none of the telecommunications companies made imports for network upgrades in 2016/17. The entry of tower management firms has also reduced the volume of telecommunications related imports.

"Some firms that still utilise 3G technology were also reluctant to upgrade during the same period," said Dicksons Kateshumbwa, URA Commissioner for Customs.

Overall profitability patterns in the information and communications technology sector fell by 37.2 per cent in 2016/17 compared with the growth of 67.9 per cent registered in 2015/16, URA data indicated.

Profitability in the financial and insurance sector grew by 6.58 per cent in 2016/17 compared with the growth rate of 53.99 per cent recorded in 2015/16.

Manufacturing firms posted 11.5 per cent growth in profitability during 2016/17 compared with 24.8 per cent realised in the previous financial year.

In contrast, profitability levels recorded in the wholesale trading sector increased by 29 per cent in 2016/17, compared with a growth rate of 11.8 per cent achieved in 2015/16.

"This year's budget seems to offer more tax reducing measures than expansion initiatives and that means growing tax revenues under higher collection targets will be a tall order," argued Dr Fred Muhumuza, an economist.

New tax measures, which include reintroduction of value added tax on wheat grain, are projected to raise Ush289.67 billion ($79.6 million) in additional revenues.
The tax revenue collection target for 2017/18 stands at Ush15,062 trillion ($4 billion).

Reduced tax revenues also induced tougher enforcement measures targeted at less compliant taxpayers in the past financial year. For instance, Ush80.68 billion ($22 million) was recovered through debt collection measures against a target of Ush75 billion ($20.6 million).

Uganda's deficit grows as business bites harder - The East African

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