Understanding the National Budget for 2020/2021
By CPA Kalinda Gonzaga Joseph
Kalinda & Associates Certified Public Accountant (U)
The Minister of Finance, Planning and Economic Development in accordance with section 155(1) of the constitution of Uganda and section 13(13) of the Public Finance Management Act (2015) delivered the budget speech on behalf of H.E the president of Uganda on 11 June, 2020 which summarized the economic policy budget estimates that had been approved by Parliament on 24 April, 2020. The theme of the budget is “Stimulating the economy to safeguard livelihoods, jobs, businesses and industrial recovery”.
Due to the effects of the COVID-19 pandemic, the new budget focuses on the economic transformation agenda, the economic stimulus and growth strategy which shall:
(i) Restore household incomes and safeguard jobs
(ii) Re-ignite business activity
(iii) Provide tax relief to businesses
(iv) Enhance economic infrastructure
(v) Improve good governance and maintain security, law and order.
The specific measures that the government will implement are:
1. Restoring Household incomes and Safeguarding Jobs
Interventions will be implemented to increase agricultural production to ensure national food security and expand regional food exports. This measure will also sustain the supply of inputs for agro-processing. Safeguarding jobs and other non-farm incomes is also critical for the restoration of demand for agricultural products.
The specific actions that will be implemented in this regard are the following:-
i. Provision of improved agricultural inputs using NAADS e-Voucher Scheme to farmers and upscaling agriculture extension services to boost production of key agricultural commodities, for which an allocation of UShs. 300 billion has been made;
ii. Create jobs for the vulnerable but able bodied persons affected by COVID-19 by expanding labour intensive public works in urban and peri-urban areas; for which an allocation of Ushs 130 billion has been made;
iii. Provide rainwater harvesting technologies in rural communities, implementation of solar irrigation schemes and investment in the construction of multi-purpose water reservoirs
iv. Roll-out regional and community based storage facilities to store increased agricultural products and reduce post-harvest losses; and
v. Provide seed capital to organised special interest groups under the Youth Fund, Women Entrepreneurship Fund and the ‘Emyooga’ Talent Support scheme; for which an allocation of UShs. 256 billion has been made.
2. Re-Igniting Business Activity
Micro, Small and Medium enterprises (MSMEs) are the backbone of Uganda’s economy, representing an estimated 85 percent of private sector companies in regard to employment. The vast majority are operated by households and have also been extremely vulnerable to the recent emergencies, as they have low cash reserves and limited access to affordable investment finance. This will be done through the following measures:
i. Provide credit through SACCOs and microfinance institutions to support micro and small-scale enterprises with proposed allocation of UShs 94 billion for FY2020/21;
ii. Increase access to credit at Uganda Development Bank to offer low interest financing to manufacturing, agribusiness and other private sector firms, for which UShs. 1,045 billion over the medium term was provided;
iii. Increase funding to Uganda Development Corporation for public-private partnership investments to facilitate increased imports and reduced exports, to start with, UShs. 138 billion was provided. Companies will access these funds for investments;
iv. Provide for banks to extend loan terms to their borrowers who are facing cash constraints and provide additional cash requirements on a case by case basis, as recently guided by the Bank of Uganda;
v. Reduce charges on mobile banking and mobile money transactions, to improve efficiency, reduce person-to person contact to prevent spread of COVID-19; and finally
vi. Speeding up the payment of arrears owed by the Government to private sector firms/suppliers starting July 2020, for which UShs 673 billion was provided in order to address cash constraints faced by suppliers of Government. Priority will be given to Small and Medium Enterprises, cooperative societies and contractors.
3. Tax Relief to Businesses
In order to further address the short term emergency cash requirements of businesses, boost their cash flows, and ensure business continuity, the minister proposes the following tax relief measures, which will be presented to Parliament:-
i. Extend payment of Corporate Income Tax or Presumptive tax(tax on small businesses for Corporations and Small, Medium Enterprises (SMEs). The payment of any Corporate Income Tax and Presumptive Tax due 1 April 2020 to 30 June 2020, for tax compliant businesses with a sales total of less than Shs 500 million per year. Furthermore, no interest or penalties will accumulate on these amounts during this period. This is aimed to benefit companies and Small or Medium Enterprises (SMEs) especially in tourism, manufacturing, horticulture and floriculture. The number of taxpayers benefiting from this measure for whom Corporate Income Tax is applicable is 10,140 and the deferred tax is estimated to be Ushs 12.5 billion. In addition, the number of tax payers benefiting from the presumptive tax measure is 23,892, and the deferred tax is estimated to be Ushs 1.38 billion.
ii. Extend payment of PAYE by sectors affected: Payment of PAYE (Tax on Salaries) is extended until September 2020 for PAYE due from 1 April 2020 to 30 June 2020 for tax compliant Ugandan businesses facing hardships as a result of the COVID-19 pandemic. No interest will accumulate on tax due during this period. An estimated UShs 65.35 billion due from Pay As You Earn (PAYE) for manufacturing and tourism sectors is being extended. For floriculture sector, the expected PAYE extension is Ushs 0.237 billion.
a) The payment of taxes has just been extended but not waived off.
b) It is also for those sectors mentioned which is manufacturing and tourism.
c) To benefit from this arrangement, one will have to formally apply for extension of payment of this tax and a memorandum of understanding signed with the Uganda Revenue Authority.
d) This extension only relates to the PAYE due between 1 April to 30 June 2020, in other words the tax for March, April and May 2020.
iii. Waive interest on tax arrears: Interest and penalties on tax not paid before 1 July 2020 to lessen the tax liability of businesses which voluntarily disclose any unpaid taxes and pay them within this period. The expected tax relief as a result is Ushs 50 billion.
iv. Provide for tax deductibility of donations for the COVID-19 response. Proposed allowing the value of the donations the private sector has made towards the COVID-19 response. Previously, section 34 of the Income Tax Act and section 2(bb) of the same Act could not have these donations allowed in the current setting.
v. Quicken payment of outstanding VAT refunds: The Uganda Revenue Authority will speed up payment of outstanding VAT refunds due to businesses accompanied by measures to limit fraud. An additional Ushs 120.53 billion will be refunded.
4. Financial Sector Stability
Bank of Uganda pronouncements on measures being implemented to mitigate risks to overall economic growth, and also ultimately support the financing of businesses as follows:
i. Providing for adequate capital buffers for supervised financial institutions to ensure effective operation by extending payments of all discretionary dividends and bonus payments for at least 90 days effective March 24, 2020. This preserves the capital of a financial institution and is intended to support the real economy;
ii. Smoothening out volatility in the foreign exchange market arising from global financial markets;
iii. Providing exceptional liquidity assistance for a period of up to one year to Supervised Financial Institutions that may need it;
iv. Waiving limitations on restructuring of credit facilities. Supervised Financial Institutions (SFIs) have been permitted to extend loans and provide loan repayment holidays to companies and individuals affected by the Corona Virus pandemic; and
v. Encouraging the reduction of mobile money and other digital transactions fees that are charged by Mobile Network Operators and commercial banks, in order to limit the use of cash and customer visits to banks.
5. Enhance economic infrastructure
Economic infrastructure covering roads, rail, water, irrigation and air transport remains key to economic recovery and boosting economic transformation. The interventions that will be implemented to enhance economic infrastructure include the following:-
i. Undertaking emergency maintenance across the country of Roads and Bridges infrastructure following the destruction caused by floods;
ii. Developing warehousing capacity at community, district and regional hubs across the country to restoring supply chains and promote exports;
iii. Speeding up construction of priority industrial parks and special economic zones;
iv. Rehabilitating the Meter Gauge Railway, improving water transport safety by installing navigation aids and development of air cargo infrastructure, including the completion of the new cargo facility at the Entebbe International Airport; and
v. Expanding feeder and national road network, power, and Information and Communication Technology (ICT) infrastructure.
Improving Peace, Security and Good Governance
In order to promote peace and security of persons and property at the community level, government will implement the following measures:
i. Intensify community vigilance by strengthening the Local Council system, promote community policing in coordination with Local Defence Units (LDUs);
ii. Complete the rollout of the Safe City CCTV project in Jinja, Lugazi, Kayunga, Njeru, Gulu and Masaka and ensure its effective utilization in monitoring crime and responding to distress calls;
iii. Improve border control through phased implementation of border point automation, in order to control illegal entry, improve compliance with immigration laws and regulations, and ensure national security;
iv. strengthen the capacity of internal security; and
v. Fast track implementation of the convict transitional policy to integrate former convicts back into their communities.
To ensure the defence of the country, Government will further strengthen the capability of the Uganda Peoples’ Defence Forces, and enhance the effectiveness of the Intelligence apparatus.
Access to Justice
To improve access to Justice, the following interventions will be undertaken:-
i. Construct an additional 5 one-stop Justice Law and Order Service Centres across the country;
ii. Implement the electronic case management system in the Judiciary to increase efficiency in case management;
iii. De-concentrate services for Government Analytical laboratories and business registration services to regional centers in Arua, Fort Portal, Gulu, Mbale, Mbarara and Moroto;
iv. Build capacity of Local Council courts in adjudication in order to decongest courts of petty cases and increase access to justice. To date 38,000 Local Council Court officials have been trained and a further 78,000 are targeted for training in 2020/21;and
v. Eliminate case backlog by implementing the case backlog reduction strategy, including the use of non-custodial sentences including Community Service to reduce remand population.
Parliament recently enacted into law the Administration of the Judiciary Bill 2018 which comprehensively provides for the functioning, operation and administrative independence of the Judiciary. Construction of the Supreme Court and the Court of Appeal has commenced and will eventually address housing of these important appellant courts of law. We therefore look forward for enhanced performance of the Judiciary.