Shadow Minister for Finance, Muhammad Muwanga Kivumbi speaking on the floor of parliament.
The Opposition in Parliament has said that the proposed resource envelope for the next financial year 2023/2024 is unrealistic based on the proposed tax revenue collections and the country’s debt stock.
This is according to a minority report on the proposed National Budget Framework paper presented to parliament by the Shadow Minister for Finance, Muhammad Muwanga Kivumbi.
The government projects a 49.98 trillion Shillings national budget for the next financial year 2023/2024, compared to 48.13 trillion for the current financial year 2022/2023.
Although the resource envelope is proposed to increase by 1.85 trillion, the government says that the discretionary resource envelope reduced by 2.53 trillion from 25.4 trillion to 22. 86 trillion due to the projected increase in the interest obligations and obligation to settle Bank of Uganda borrowing.
The proposed budget will be financed through domestic revenue equivalent to 28.83 trillion, budget support amounting to 2.491 trillion, domestic borrowing of 1.585 trillion, external project support worth 8.04 trillion, domestic refinancing of 8.798 trillion, and local revenue for local government (AIA) of 238.5 billion Shillings.
“Based on past performance, it is not feasible that domestic revenues will grow by 3.28 trillion.
Since the financial year 2022/2023 is still running, the fiscal trends of the financial year 2018/2019 to the financial year 2021/2022 can be used to demonstrate the dishonesty in the budget framework paper. Apart from the financial year 2018/2019, Uganda Revenue Authority (URA) has never surpassed its targets,” Kivumbi partly writes in his minority report.
He also argues that the growth in government expenditures surpasses URA collections and that this is an indication that affirms that government is a perennial borrower to sustain its superficial existence given the growth of debt, which is more than double the growth in revenue.
Muwanga proposes that the Auditor General conducts a special audit of the budgeting frameworks used to generate the resource envelope which he describes as unrealistic.
Kivumbi says that a realistic resource envelope would be a budget projection based on what was realized in the previous financial year’s revenue collections.
Data from URA for the financial year 2018/2019 indicates that the authority had performed beyond its revenue target of 16.35 trillion and collected 16.61 trillion against the government expenditure of 24.26 trillion. In this financial year, the total debt was 46.88 trillion Shillings.
However, in the following three financial years, URA failed to hit its target. In the financial year 2019/2020, the revenue target was 20.34 trillion but URA collected 16.75 trillion against the government expenditure of 28.85 trillion and total debt of 57.13 trillion.
In the 2020/2021 financial year, the Authority had a target of 21.63 trillion, collected 19.26 trillion against the government expenditure of 36.26 trillion, and total debt of 70.25 trillion.
Data further indicate that in the last financial year 2021/2022, the revenue target was 22.36 trillion and the tax body collected 21.65 trillion. The government expenditure was 35.02 trillion while the country’s total debt was 78.33 trillion.
Wamakuyu Mudimi, the Budget Committee Vice Chairperson also in his report observes that the contribution of tax revenues to the total budget has continued to decline now projected at 58 percent next financial year, hence pushing the government to costly borrowing.
“It is estimated that the potential revenue collection is between 16 to 18 percent of GDP highlighting a significant gap to be covered in revenue collection. In addition, compared to the neighboring countries in the region, Uganda’s revenue collection effort remains low,” reads the Budget committee report.
Wamakuyu says that the wide range of exemptions and deductions granted to investors has resulted in lower tax revenue.
“Overall, these incentives result in substantial amounts of lost revenue, estimated to be 1.56 percent of GDP in the financial year 2021/2022 (2.47 trillion Shillings), and yet their effectiveness in attracting new, productive investment is still ambiguous. Over the past six financial years, the value of revenue foregone due to tax exemptions has increased from around 0.87 percent of GDP in the financial year 2016/2017 to 1.56 percent of GDP in the financial year 2021/2022. The revenue is forgone notwithstanding, James and Sebastian (2014) found that 93 percent of investors would have taken their activities in Uganda even if tax incentives had not been provided,” further reads the report.
Wamakuyu recommended that government develops a National Tax Policy that would form the basis for effective tax legislation and tax administration as currently there is none. He also recommended the implementation of a coordinated approach to revenue mobilization to improve revenue mobilization efforts and prioritization of wider consultations on tax policy design prior to drafting tax policies into laws and to avoid tax policy reversals.
Article 155(4) of the constitution, Section 9(7) of the Public Finance Management Act, 2015, and Rule 148 of the Rules of Procedure of Parliament, mandate sectoral committees on the House to among others, examine and comment on policy matters affecting ministries and departments. The same provisions also require parliament sectoral committees to examine critically government recurrent and capital budget estimates and make recommendations on them for general debate and consideration both in the committee on budget and the House.
Debate on the two reports was deferred to Tuesday next week by Deputy Speaker, Thomas Tayebwa.