POSITION PAPER ON FINANCE PLANNING AND ECONOMIC

DEVELOPMENT

Civil Society Budget Advocacy Group (CSBAG)C/O P O BOX 660, Ntinda |Tel: + (256) 041 4 286063

| Email: csbag@csbag.org | Web: www.csbag.org Follow us on twitter: @CSBAGUGANDA

Introduction

We have experienced inflations as high as 30.5% (annualized) in October 2011 and we have seen interest rates flare up as high as 27.25% (weighted average) in January 2012.

There was a reduction in inflation (annualized) from 23.5% in the FY2011/12 to 5.6% in FY2012/13.

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Mandate of MoFPED

The ministry's mandate is;•To formulate policies that enhance economic stability abd development•To mobilize local and external financial resources for public expenditure•To regulate financial management & ensure efficiency in public expenditure•To over see national planning and strategic development initiatives for economic growth.

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2012/13 Performance

• In the FY 2012/13, the ministry set out to achieve a 5.4% GDP growth projection but the outturn was 5.1% against NDP projections for 2012/13 of 7.2%. Core inflation was projected to be 7.7% but the economy achieved an outturn of 3.6%.

• A fiscal deficit of 6.3% was projected but 3.9% could be achieved. It is expected that 18.9% of the National Budget be mobilized from external sources to finance the 2013/14 budget.

• The Domestic tax revenue was projected to be Ushs 7,250bn but only Ushs 6,327bn was collected; NTR was projected to be Ushs 160bn by only Ushs 83.71bn was collected representing only 47.7%.

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2012/13 Performance• In the FY 2012/13, graduate venture capital funds worth

16billion were to be disbursed, UDB was to be capitalized to meet long term development financing needs and 3.25 billion was to be disbursed for the youth venture. None of these was done. They all have been put as planned outputs for the FY 2013/14.

• Of the 519 SACCOs that were to receive training, only 358 were trained; 68.9% of the task was accomplished even when 76.9% of the allocated funds were used up. In addition, of the 2000 SACCOs that were to be registered, none of them got registered.

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CSBAG Concerns

Microfinance

In the FY2013/13, only 68.9% of SACCOs were trained and none of the 2000 SACCOs that were to be registered was actually registered yet a total cost for the vote function was 24.973 bn was allocated. The concern is that even with all the unfinished work, in the FY 2013/14, the vote function has got 33.9% less allocation from the previous year leaving them only with 16.519bn. Government should allocate more funds to the microfinance vote function so as to get SACCOs trained and registered.

Policy Recommendation

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CSBAG Concerns

Interest payment on domestic and external debts

In the FY2013/14, the interest payment on domestic and external debts is expected to grow by 26.6% and 8.9% respectively. Interest cost on public debt is estimated to have increased by 47.6% in the FY2012/13 to Shs. 890.5 billion compared to Shs. 603.3billion incurred in the previous year.

Policy Recommendation

• Government should reduce on the stock of public debt by acquiring especially loans that are to be invested and can pay the interest with the returns.

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CSBAG Concerns

Domestic debt

In the FY 2013/14, government plans to borrow more than Ushs 1 trillion from the local market. We know that this will only discourage the commercial banks further from lowering the lending rates to the local businesses since they investment in the government securities and bonds is always considered less risky. This works to negate the government strategy of private sector led growth because of the crowding out effect.

Policy Recommendation

• Government should borrow from other non concessional sources since the DSA indicators show that there is still a lot of room for borrowing if the government needs to.

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CSBAG Concerns

Monetary policy

Since the adoption of inflation targeting as a monetary policy framework, the lending rates by commercial banks are not significantly directed by the CBR, which is supposed to inform the market on the direction of investment. Commercial banks are keeping interest rates as high as 19% when the CBR is as low as 11%.

Policy recommendation

• Government should use more tough measures to ensure adherence to the CBR. Leave it all to markets forces exposes enterprises to markets failures like high lending rates with low CBR.

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CSBAG Concerns

Taxation Policy

The elimination of VAT exemption on supply of water for domestic use, VAT exemption on wheat and flour, increase of exercise duty of Ushs 50 /= on petrol and diesel and restoration of exercise duty of Ushs 200/= on kerosene all expected to raise about Ushs 125 bn are a way of government giving with one hand and taking with the other. It should be noted that over 70% of the population are the ones who will face this injustice yet they earn the least.

Policy recommendation

• Government should borrow from other non concessional sources since the DSA indicators show that there is still a lot of room for borrowing if the government needs to.

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CSBAG Concerns

Private sector led growth

With the government campaigning for private sector lead growth, one would expect that the Investment and Privates Sector promotion vote function for the ministry would get more of the ministry’s allocations. However for the FY2013/14, this vote function has received only 15bn, a 46.4% reduction from the previous year’s actual release.

Policy recommendations

• Government should increase the funding to the Investment and Privates Sector promotion vote function so as make the private sector more equipped to lead growth in the economy.

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CSBAG Concerns

Presidential Jet

In the budget for the Treasury Operations in the FY 2012/13, 9.7bn was allocated for the presidential jet and these funds were readily availed for the same. Government chose to priorities the presidential jet at the cost of the tax payers and the public servants who are perpetually paid late.

Policy Recommendation• Government should

priorities its allocations to the plight of the people who pay the taxes.

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CSBAG Concerns

Gender responsive budgeting

In 2004, there was an attempt to MDAs address gender issues through Gender Responsive Budgeting (GRB). MoFPED organized GRB capacity building of gender focal persons, planners and budget officers. Most sector budgets neglect the

directive of gender budgeting.

Policy recommendations

• MoFPED needs to introduce an enforcement mechanism to ensure that the budget call circular directive on gender & equity budgeting is adhered to by all sectors in their plans.

• Introduction of a certificate of gender & equity clearly showing that it becomes a basis for sector budget approval.

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CSBAG Concerns

Issues from Audit Report 2010/11

Several hotel developers applied for and received tax waivers/rebates for imports during 2011 the violation of which spread into 2012, after the cancellation of their waiver in December 2010. This led to a loss of Shs.906,568,335.

A total of Shs.25,472,540,965 was recognized as outstanding tax refund as at 30th June 2011 for Southern Range Nyanza.

Policy Recommendation

• Renewals of tax incentives should be based on assessment of previous performance as well as its implications on revenue collections.

• Government should review the policy guidelines that govern the scheme with a view of streamlining them, and avoid it being abused.

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CSBAG Concerns

Issues from Audit Report 2010/11

The ministry refunded a total of Shs.209,449,343 to LAP Textiles in respect of PAYE for expatriate staff for the period November 2007 to February 2009. Included were fees for work permits for the same expatriates.The Oil Palm Uganda Ltd, BIDCO tax file at the ministry indicated an accumulation of VAT arrears of Shs.1,270,453,589 for the period May 2010 to June 2011.

Policy recommendation

• Renewals of tax incentives should be based on assessment of previous performance as well as its implications on revenue collections.

• Government should review the policy guidelines that govern the scheme with a view of streamlining them, and avoid it being abused.

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CSBAG Concerns

Issues from Audit Report 2010/11

The Minister of Finance granted the Sameer Agriculture & Livestock Ltd (SALL), corporate tax holiday incentive for 10 years w.e.f 1st July 2006 and undertook to pay corporate tax on their behalf. Shs.989,684,569 was accordingly paid by the Ministry to URA in respect of corporation tax on behalf of SALL for the period 2010/2011. About Shs.1.2 billion had also been paid for the period 2009/2010 and Shs.1,337,854,151 in November 2011.

Policy recommendation

• Renewals of tax incentives should be based on assessment of previous performance as well as its implications on revenue collections.

• Government should review the policy guidelines that govern the scheme with a view of streamlining them, and avoid it being abused.

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Conclusion

Prudent macroeconomic interventions, good monetary and fiscal policy frameworks, corporate governance but mostly

good governance is what will address the needs and aspirations of the poor and marginalized groups of people

in Uganda.

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