Business

2019/20 Budget to support industrialization for job creation and shared prosperity

L-R: Airtel Uganda CEO V.G Somasekhar, Private Sector Foundation Uganda (PSFU) Executive Director Gideon Badagawa, EY Tax Partner Muhammad Sempijja, Economist Dr Fred Muhumuza and EY Associate Director Tax David Baliraine. The five were part of the discussion panel during the Ernst & Young Budget Breakfast.

The Uganda National Budget 2019/20 has for the third-year running highlighted industrialization for job creation and shared prosperity as its budget theme. The fact that this theme is aligned to those of the other East African Community (EAC) underscores the importance attached to inclusive growth by all the regional countries, including Uganda.

The financial year 2019/20 budget strategy as contained in the national budget emphasizes the government’s commitment to promote industrialization and skills development which is intended to lead to job creation and shared prosperity among Ugandans, thus addressing the perennial challenges of unemployment and income inequality.

The major development challenges that have been identified are that 70% of Ugandan households remain engaged in the subsistence economy; income inequality continues to widen between the rural and urban populations; low agricultural sector growth; declining private sector competitiveness; inadequate and/ or unskilled labour; and limited application of technologies in production processes, particularly in agriculture and industry as well as the limited to long-term credit to start or boost Small and Medium Enterprises (SMEs) to boost private sector investment.

The three-pillar budget strategy consists of expanding the industrial base of the economy; exploiting natural resource endowments with environment protection in mind; and providing affordable financing for production and business.

The expansion of the industrial base is expected to create jobs, thereby addressing the challenges of unemployment and income inequality, leading to inclusive growth. Government has committed to improve the capacity of manufacturing firms to increase productivity especially in the arena of agro-processing by providing incentives in the development of industrial parks and free zones in the form of specific tax exemptions from income taxes, Value Added Tax, Excise Duty and Stamp Duty.

The government has also identified several measures to address constraints to financing the private sector and this will assist to achieve sustainable private sector investment. These measures include additional capitalization of the Uganda Development Bank (UDB) and providing affordable credit to SMEs through the Microfinance Support Centre.

From a domestic revenue mobilisation perspective, new tax amendments have been passed which are intended to provide clarity in the interpretation and application of tax laws in order to minimize unnecessary disputes between taxpayers and the tax administration, as well as generating the much needed domestic resources to finance the budget.

Other tax changes have been introduced to address the vices tax avoidance and evasion, especially Excise Duty registration and collection procedures, as well as measures to strengthen tax administration.

These measures are expected to increase domestic revenue mobilisation and improve the country’s Tax to GDP ratio from the current 15.2% of GDP to 16.8% in the coming fiscal year. We would like to highlight that, barring any hiccups, if the budget strategy and attendant proposals are implemented as laid down by the Finance Minister in his budget speech, they will go a long way in helping the country to achieve the desired inclusive development through industrialization, job creation and shared prosperity.

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