Ugandan Finance Minister Honourable Maria Kiwanuka’s 2012/13 budget is guided by five revolutionary events that are impacting the domestic economy. Firstly, Europe continues to flirt with crisis, while the United States economy has not yet shown signs of a return to robust economic growth and Japan economy is struggling. Vulnerability to global shocks arising from greater integration as seen in low export receipts and workers remittances remains a major concern. Financial contagion in the periphery of the Euro zone coupled with stagnant growth of its major economies present a bleak economic future for developed Europe. Following on from Ireland, Greece and now Spain, the domino contagion in Europe continues with declining prospects of containment. As a consequence, European governments could possibly cut back in development aid to African countries, Uganda inclusive.

Secondly, the presidential and parliamentary elections have just been concluded a few months ago and the effect on the economy is unprecedented. Heavy election spending in face of slow economic growth left the economy in a vulnerable state. Through out 2011, the country experienced headline inflation of over 30 percent. Prices of food rose to unprecedented levels. High cost of transport accelerated by the rise in international oil prices and depreciation of the shilling due to worsening balance of trade compounded the problem. Export of goods and services during the 2011/12 financial year amounted to US$ 4.1 billion, against imports bill of US$ 5.31 billion on goods plus US$ 2.23 billion on services. Inflation pressure only began to ease in early February 2012, when the rate dropped to 25.7 percent. The rate improved further to 18.6 percent in May 2012.  The Bank of Uganda applied tight monetary policy to bring down the price level, leading to a rise in interest rates. The exchange rate volatility witnessed in 2011 was also among the worst ever seen in past three decades. Nevertheless, the overall balance of payments remained positive, helped by increased inflows of remittances amounting to US$ 2 billion, foreign direct investments totaling US$ 834 million, and portfolio flows amounting to US$ 274 million.

Thirdly, the peace and recovery in northern Uganda opens up a latent economy that will increase aggregate demand for goods, including infrastructure that will reconnect this previously isolated region to the rest of the country. Higher demand is expected to translate into a commensurate increase in production/output and faster economic growth for the country. In addition to these, a new market is emerging in South Sudan and the peace mission in Somalia is holding the promise of a greater regional peace and economic cooperation. Uganda is already experiencing an unprecedented increase in demand for its goods and services from southern Sudan and the Democratic Republic of Congo. Growing regional demand has boosted export earnings and foreign currency inflows, enabling the country to build up it foreign currency reserve. Uganda has benefited from higher commodity prices that have boosted its export earnings and prompted higher production, as commodity producers seek to capitalise on the boom.

Fourthly, recent sizeable oil discoveries along the Lake Albert are set to turn the country into a key energy player in the region and are rapidly changing the economic fortunes of one of the world’s poorest countries. Provided of course that the oil revenue is well-managed, it could help Uganda’s fiscal consolidation as it covers the country fiscal deficits, improve trade balance and ease exchange rate pressures and help attract investments in agriculture and other industries through investment in infrastructure development. Government is keen to ensure that the domestic market takes priority in the development of the Lake Albert fields that have been developed by Tullow Oil. Plans are underway to construct a 200,000 b/d capacity refinery and to build a 230km pipeline from the Lake Albert Rift Basin to Kampala to transport oil.

Lastly, the global revolution in information and communications technology (ICT) implies that companies’ call centre operations cannot only be outsourced but they can also be located on other countries. With a country seeking to create more employment, Uganda is strategically positioning itself as a call centre destination and services hub for the foreign multinationals by enhancing the domestic ICT infrastructure. Government has invested massively in the latest technological infrastructure: backbone infrastructure and has put in place appropriate legal and regulatory framework for the ICT sector

The 2012/13 budget strategy

The 2012/13 budget strategy is centred on unlocking the most binding constraints to help restore faster economic growth, and in a manner that is inclusive and sustainable. The budget lays down three key macroeconomic objectives, which are (i) to achieve a growth rate of at least 7% per annum in the medium term; (ii) the return to single digit inflation rates; and (iii) to improve Uganda’s balance of payments by reducing the current account deficit. To maximize the economy’s growth potential, the budget strategy focuses on improving Uganda’s business climate and removing weaknesses that obstruct growth in the productive sectors such as agriculture. To promote private sector growth and development, government is pursuing measures that will lower the cost of doing business in Uganda, for example, infrastructure investment and improving skills for competitiveness and ensure training matches requirements of the job market.

The minister highlights three major interventions in the FY 2012/13:

  1. Rehabilitation and expansion of road and electricity infrastructure to reduce transport costs and improve access to affordable energy to support the private sector as an engine of growth.
  2. Research and Development to improve productivity, such as developing improved seeds and other inputs, provision of extension services in the field, and skilling our workforce to operate agro processing industries e.g mechanics, electricians, machine operators, carpenters, plumbers, etc.
  • Improving business efficiency by streamlining regulatory rules and business licensing reform.

Financial performance in 2011/12 and projection for 2012/13

The economy in FY 2011/12 struggled with an acute energy crisis that pushed up energy costs and forced industry to operate under capacity. The manufacturing sector, which is severely affected by the power shortages and had to resort to using diesel-powered generators, contracted by 4.1 percent in 2009/10 and 4.4 percent in 2011/12. The service sector also grew by a dismal 3.1% in 2011/12. The overall real GDP growth was estimated at 3.2% in FY 2011/12 down from 6.7% in 2010/11. The weak economic growth affected domestic revenues, which performed below target over the year, growing by 17.9% compared to the 21.6% growth recorded in the previous year. Total expenditure releases during the financial year were Shs137billion below the target of Shs 9,869 billion. The main reason for this is the delayed start to the construction of Karuma Hydro power station. The table below compares the government budgetary and financial operations during the recent years.

Central government current receipts

Government revenue rose by 40.7 percent from Shs. 5,182.6 billion in FY 2009/10 to Shs. 7,292.5 billion in FY 2010/11. Taxes account for the bulk of government revenue (at 87 of total revenue in 2010/11). Consumption taxes (VAT and Excise taxes) remained the main source of government revenue accounting for 38.8 percent of total revenue in FY 2010/11. Other important source of revenue was the collections from the oil exploration and related activities. Grants, the largest component of non tax revenue, contributed 11.7 percentage points to total revenue in FY 2010/11.

Central government current spending

General Public Administration accounted for the largest share of the central government recurrent expenditure at 44.9 percent In FY 2009/10, followed by Defence with 19.3 percent, and then Public Order and Safety Affairs with 13.3 percent. This pattern is the same as in the previous years.

SUMMARY OF CENTRAL GOVERNMENT BUDGETARY AND FINANCIAL OPERATIONS, 2006/07 -2010/11, USH (BILLION)  
 Item  2007/08 2009/10  2010/11 2011/12 (projection 2012/13 (projection
Revenue and grants 3,985.3 5,182.6 7,292.5 8,016.0
 Domestic revenue  3,246.8 4,319.5 6,402.1 6,289.7
 Tax revenue  3,161.1 4,205.7 5,114.3 6,169.1
 Non-tax revenue  85.7 113.8 95.1 120.6
 Grants  738.5 863.0 890.4 1,726.3
Budget Support 475.2 467.3 515.5 634.9
Project Support 263.3 395.7 374.9 1,091.4
Expenditure and lending 4.439.2 6,831.1 8,972.5 9,820.1
Recurrent expenditure 2,881.2 4,307.1 5,958.0 4,971.2
Development expenditure 1,436.7 2,478.4 2,850.9 4,816.2
 External debt repayment  (162.9) (36.7) (30.2) (38.9)
 Domestic arrears repayment  284.1 82.3 193.8 71.5
Overall fiscal balance (excl. grants) (1,192.4) (2,511.5) (2,570.4) (3,530.4)
Overall fiscal balance (incl. grants) (453.9) (1,648.5) (1,680.0) (1,804.0)
External financing (Net)  /1 557.4 757.0 723.9 937.6
Domestic financing (Net)  /2  38.0 701.5 1,105.0 866.5

Notes: 1/ Loans (budget and project support),

2/Bank Financing, and Non-bank Financing (Check Float, Government Securities)

Source: Uganda Bureau of Statistics

FUNCTION CLASSIFICATION OF CENTRAL GOVERNMENT RECURRENT EXPENDITURE 2006/07 – 2010/11, USH (MILLION)
Revised2007/08  Provisional2010/11  Approved2011/12*
 General Public Administration  1,139,073  1,970,652  1,999,387
 Defence  427,375 649,371  531,091
 Public Order and Safety Affairs  235,698  472,729  352,088
 Education  187,001  281,656  258,700
 Health  109,716 295,915  318,390
 Community and Social services
 Water  3,941 4,372  5,713
 Other community and social services  21,883  52,516  46,285
 Economic services
 Agriculture  32,278  54,174  64,565
 Roads  114,201  311,817  309,445
 Other economic services  25,650  43,516  61,683
 Total  2,296,816  4,136,716  3,947,346

NOTE: (i) Transfers from Treasury to decentralised districts and Urban Administration are not included.

(ii) * Data is projected

Source: Uganda Bureau of Statistics

Headline Comparisons

  • Central government current receipts in 2011/12 were 7 percent higher than in the previous year. Compared with a 10.5 percent growth in revenue reported in the last budget, from Ush4,691.9 billion in the FY 2008/09 to Shs. 5,183.4 billion in FY 2009/10, the nominal growth in revenue has been remarkable.
  • Central government current spending in 2011/12 was 4.6% lower than in the previous financial year. The minister 2012/13 Budget implied that central government current spending for the whole of 2012/13 would be much above 2011/12 levels. Expenditure on agriculture was 19% higher in 2011/12 financial year than in 2010/2011 financial year. The Budget forecast implies that central government agriculture expenditure will grow by more than 20% over 2012/13. Spending on debt interest (which is relatively small as a share of spending overall) was 529bn in 2011/12, that is, 145bn more than was spent in 2010/11. Other current spending by central government, including spending on the delivery of education and health services, was 8% lower in 2011/12 than in 2010/11 for education, and 7% higher with regard to health. The minister’s 2012/13 budget forecast implies that this component of spending will grow by close to 10% over the year as a whole.

Tax expenditure

Government has paid Ush11,601,542,443 in the FY 2011/12 for some institutions and Non-Government Organizations with tax exemptions clauses in their agreement.

  • Public debt. Total debt service including interest payments are projected to amount to Shs1,101 billion in financial year 2012/13. The minister maintains that Uganda’s public debt is sustainable in both the medium and long term, clarifying that the bulk of Uganda’s external debt portfolio has been contracted on concessional terms with a repayment period of 40-50 years, a grace period of at least 5 years, and interest rates of not more than 0.75% per annum.
  • Public sector net investment in 2011/12 was Ush.9,820bn, about Ush. 847 billion more than was spent in the previous financial year. The net investment in the 2012/13 financial year is projected to be 13.6% above last year’s level.

Revenue forecast

The government’s medium-term objective is to have sustained economic growth of at least 7%. But to bring about such growth rates, the bottlenecks in the economy need to be removed and the energy crisis, in particular, resolved. Domestic revenue collection by the Uganda Revenue Authority is projected to amount to Ushs7,251 billion for FY2012/13.

Financing strategy for 2012/13

The total amount of resources available in financial year 2012/13 is estimated at Shs11,157 billion. Domestically mobilised resources, including tax collections and domestic borrowing are expected to finance about 75% of the budget during 2012/13, whilst 25% will be provided by development partners. Budget and project support from the donor community is expected to amount to Ushs2 789 billion. Almost two-thirds of this support, Ushs1 800 billion, will be in the form of concessional loans and grants for projects that the donor community has identified. Direct budget support is expected to decline in FY 2012/13 below that for the 2011/12 financial year.

  1. Increased revenue mobilization from domestic sources
  2. External financing in form of loans and grants from development partners and private creditors
  • Public – private partnerships that mobilize private sector financing for public projects

Given that the infrastructure resource requirement is huge and the government has competing priority projects, the finance minister has proposed to mobilize grants and loans amounting to Shs. 2,679 billion (representing 25% of the National Budget) to be allocated towards counterpart financing of infrastructure projects and the improvement of service delivery. In addition, she has proposed to borrow non-concessional loans to undertake major infrastructure projects that demonstrate the necessary commercial and economic benefits, for which other financing options are not available.

The 2012/13 budget will be the third year of implementation of the National Development Plan (NDP). Government intends to provide counterpart funding to unlock loan disbursements and will seek technical assistance where necessary and ensure alignment of Public Investment Plan with the National Development Plan. Government intends to implement the Public Private Partnership Policy with the private sector to achieve efficient and faster development and public infrastructure. The Public-Private Partnerships Bill is set to be presented to Parliament in the FY 2012/13 for enactment.

The minister announced that government would maximize Non-Tax Revenues and improve tax administration at the Uganda Revenue Authority (URA) in order to ensure that Uganda is fully prepared to benefit from opportunities, such as development of the oil and gas sector and the integration of the East African Community.

Budget priorities for FY 2007/08

The priority areas that will receive the bulk of the budget are:

  1. Removing infrastructure constraints in transport and energy to facilitate private sector development as the engine of growth;
  2. Promoting support to the critical productive sectors of the economy including Agriculture, Tourism in order to generate employment and increase production;
  • Improving the quality of social services focusing on education, health and access to water; and
  1. Strengthening Public Sector Management for efficient service delivery.

These priority areas are consistent with government’s development strategy, the objectives of the National Development Plan and the long-term vision of the socio-economic transformation of Uganda.

Areas of priority in budget allocations Allocation in Ush (billion)
FY 2007/08 FY 2011/12 FY 2012/13
 Energy infrastructure  211.0
 Thermal power generation  92.0
 Hydropower plants and related infrastructure  119.0
 Transport infrastructure  50.0  1,291  1,651
 Maintenance  35.0
 Completion of road construction projects  15.0
 ICT – National Data Transmission Back Bone  5.0
 Human development  63.0
 Education  24.0  1,418  1,669
 Healthcare  19.0
 Water  20.0  271  355
Agriculture 585.3
 Public service salary reform  30.2
 Local government financing  50.5
 Peace recovery and development of northern Uganda  23.6
 Tackling corruption  16.5
 Youth Venture capital fund 25 3.25
 Graduate Venture Capital Fund 16

Infrastructure

The government’s most pressing development challenge is to resolve the debilitating infrastructure problem. Infrastructure development has hence been placed at the top of the priority list, which include

  1. Rehabilitation and expansion of the road network with special emphasis on roads in agricultural areas and export routes; and
  2. developing alternative access routes to the sea through both the southern and northern corridors.

Poor road networks in Uganda explain why it has the second highest transportation cost for a landlocked African country, after Ethiopia. As roads are the main mode of transport moving more than 85% of freight and human passengers, investment in the development and maintenance of the road network is essential. The government’s objective is to enhance road maintenance and rehabilitation at the district level. To this end, 142 units of road equipment have been procured for local governments. The minister proposed to increase the allocation to the Works and Transport sector to Shs 1,651 billion in the next financial year from Shs1,291 billion in the year ending to enable. This allocation will enable construction to continue on 15 roads across the country, namely, Fort-Portal-Bundibugyo (104km); Busega-Masaka (116km); Nyakahita-Kazo-Kamwenge (143km); Kawempe-Kafu (166km); Malaba/Busia-Bugiri (82km); Tororo-Mbale-Soroti (152km); Mbarara-Katuna (124km); Jinja-Kamuli (60km); Mbarara-Kikagati-Murongo Bridge (75km); Hoima-Kaiso-Tonya (85km); Vurra-Arua-Koboko-Oraba (92km); Gulu-Atiak (74km); Ishaka-Kagamba (35.4km); Kabale-Kisoro-Bunagana/Kyanika (101km); Masaka-Mbarara (154km).

The government’s other most pressing development challenge is to resolve the debilitating energy crisis. The government’s specific target in this regard is to increase thermal power generation to at least 250 megawatts by completing and commissioning power plant at Bujagali and beginning construction of Karuma dams in 2012/13.

The minister highlights six measures that Government would undertake in the FY2012/13:

  1. Fully commission the 250MW Bujagali Hydro Power Project;
  2. Start construction of 600MW Karuma Hydro Power Project;
  • Complete preliminary designs for the 600MW Ayago and 140MW Isimba Hydro Power Projects;
  1. Provide financial support in the construction of 125 MW of renewable Mini Hydro Projects;
  2. Further expand the Rural Electrification Programme to increase access to power; and
  3. Ensure aggressive power loss reduction by rolling out prepaid meters and investing in the distribution network.

Education, health and water

An allocation of Shs 1,669 billion been proposed for the education sector, which accounts for the largest share (17%) of the national budget, and an increase of 17.7% from Shs 1,418 billion allocated the previous financial year 2011/12. The sector provision will also cater for includes salary increases for Primary School Teachers and Science Teachers in Post O-Level institutions. In FY 2012/13 the minister has proposed allocating Shs 290 billion for teachers, scientists and other civil servants. In the health sector, Government’s objective in the 2012/13 financial year is to address poor child and maternal health, weaknesses in the drug management system, inadequate health infrastructure and personnel constraints. To increase the coverage of water supply and to provide water for production, the government has proposed increasing total allocation to the water sector in the FY 2012/13 from Shs 271 billion to Shs 355 billion.

Agriculture

As part of the government’s objective of bringing “prosperity to all” and given the fact that the poorest of the population are based in rural areas, one of the priority areas is rural development. In FY 2012/13 the minister has proposed allocating Ushs 585.3 billion to agricultural sector.

Northern Uganda

To support peace recovery and development efforts in northern Uganda, government allocated in 2007/08 Ushs18.6 billion to support resettlement and Ushs5 billion for the provision of water in the region. For over two years now, resources for recovery of northern Uganda have been channeled through Peace Recovery and Development Plan (PRDP) programme.

Creating employment opportunities

In the previous fiscal year the finance minister proposes establishing Youth Venture Capital Fund for which Shs. 25 billion is being lent out to youth, with the help of participating financial institutions. To date, Shs. 8 billion has been disbursed to 3,000 youth. In 2012/13 the minister proposed allocating an additional Shs 3.25 billion towards the scheme. To address the needs of graduates who have bankable project proposals but lack the requisite funding, the minister announced that government is establishing a Graduate Venture Capital Fund with an allocation Shs 16 billion to be implemented with participating financial institutions.

Oil and gas

With respect to the Oil and Gas sector, Government has presented legislation to Parliament for establishing a sound legal and regulatory framework, as well as the institutional arrangements for prudent management of the oil resource. The Bills before Parliament are

  1. The Petroleum (Exploration and Production) Bill 2012
  2. The Petroleum (Refining, Gas Processing and Conversion, Transportation and Storage) Bill 2012
  • The Public Finance Bill 2012, which contains the petroleum revenue management framework

Pension sector reforms

One of the government’s priority targets is to reform the pension sector by setting up a regulatory framework and turning the National Social Security Fund (NSSF) into a pension fund. This is a process that has been going on for several years. The legislation to provide oversight and regulation of the pension sector came into effect in September 2011, and the Retirement Benefits Regulatory Authority is set to be established in the 2012/13 financial year. Government has undertaken reform of the pensions sector with the view to increasing private savings which can be leveraged to finance domestic investment on a sustainable basis. Government considers the completion of the pension reform as a key element in the development of the country domestic debt market.

Many commentators agree that the transformation of the NSSF into a pension fund and a regulatory environment that makes it attractive for private pension funds to emerge will increase the range of saving products and improve the rates of return offered to savers. Greater savings options would provide an incentive for Ugandans to save and enable growth of domestic savings to GDP ratio from the current 10% to about 20%. Competition will also bring about efficiency and better product offerings. Pension arrears will then gradually disappear, as Ugandans show their dissatisfaction with service by moving to another provider. Again, an expansion in the number of providers of savings products also implies growth of the demand side of capital markets, which should subsequently increase activity in the equity and debt markets.

Improving business environment

The minister announced the completion of a comprehensive review of business licenses, and recommendations made to simplify requirements, reduce discretionary powers, and eliminate redundant procedures. Following recommendations of the review, the minister announced that she would eliminate about 27 licenses all of which were found to be either obsolete or redundant. In addition, an electronic licenses registry that will serve as a repository for all approved business licensing in Uganda would be established. Implementation of the agreed recommendations is estimated to save the private sector costs worth in excess of Shs 78.3 billion. These measures are to be implemented in the 2012/13 financial year.

Government is also to establish a One Stop Centre to provide online registration services for the various licenses required to start a business. Furthermore, a Small and Medium Enterprises (SMEs) Business Guide has been developed to provide SMEs with information on available financial, business development services (BDSs), and business licensing information. The following bills aimed at improving further private sector competitiveness, and are already before Parliament which the minister has requested for their expeditious passage:-

  1. Counterfeit Bill
  2. Anti-Money Laundering bill
  • Industrial Property Bill
  1. Accountants Bill
  2. Uganda National Bureau of Standards Bill

To support current businesses and attract foreign investment the government has continued to invest in information and communication technology infrastructure, especially as quick and low-cost exchange of information has become essential to the success of an enterprise seeking to compete in a globalised world. Since allocation of Ushs5 billion in 2007/08 for the National Data Transmission Back Bone to build on fibre-optic network and wireless capability, government has continued to inject resources in development of ICT infrastructure, and promotion of innovation and industrialisation.

Tax measures to generate additional revenue

The objectives of the revenue measures for the Financial Year 2012/13 as announced by Finance minister are for revenue generation, reform of the tax laws, enhancing taxpayer compliance and to support tax administration. To this end, the minister has proposed:

Income tax

  • To increase the withholding tax on income derived from Treasury Bills and Bonds from 15% to 20% as a final tax. This measure is expected to generate Shs.16.3bn. The details are contained in the Income Tax (Amendment Bill) 2012.
  • To increase the PAYE threshold from Shs.130,000 to Shs.235,000 per month – hence adjustment in the tax bands. The details are contained in Income Tax (Amendment Bill) 2012.
  • That an additional 10% be imposed on individuals with chargeable income of Shs.120 million and above, per year. The details are contained in the Income Tax (Amendment Bill) 2012.

Value added tax

  • To reinstate VAT on water at 18%, a measure expected to generate Shs.21.7bn.
  • To reinstate VAT on the supply of biodegradable packaging materials, which is currently exempt, to enable suppliers to claim input VAT related to their products produced. This measure is expected to generate Shs. 2.2 billion. The details are contained in the VAT (Amendment) Bill 2012.
  • To reinstate the VAT exemption on gambling, but increase the Gaming and Pool Betting Tax from 15% to 20%. This measure is expected to generate Shs.4.3bn.The details are contained in the VAT (Amendment Bill) 2012.

Excise Duty

  • To increase excise duty on spirits made from locally produced raw materials from 45% to 60%.
  • To introduce a specific rate and an ad valorem duty rate on undenatured spirits of Shs.2, 000 per litre or 80 per cent, respectively, whichever is higher. The measure is expected to generate Shs.10.4 billion. The details are contained in the Excise Tariff (Amendment) Bill 2012.
  • To impose excise duty on cosmetics and perfumes at a rate of 10% as a revenue measure. The details are contained in the Excise Tariff (Amendment) Bill 2012. This measure will generate Shs.4.1bn.

Non Tax Revenue

  • To vary various fees and charges for the provision of Government services, authorizations and permits so that they are commensurate with the cost of rendering the service. This measure is expected to generate Shs.31.7bn. The details are contained in the Finance Bill 2012.

Tax laws on Excise Duty, Stamp Duty and Lotteries and Gaming

  • To reform the excise duty law, the Stamps Act, the Lotteries, Pool Betting and Gaming Act and also introduce a Tax Procedure Code to improve compliance and ease tax administration. The minister announced that these Bills would be introduced to Parliament in 2012/13 Financial Year.

Duty Remission, exemption regimes and preferential trade schemes

To facilitate smooth transition from analogue to digital terrestrial transmission by use of Set Top Boxes, import duty on Set Top Boxes was reduced from 25 percent to 0 percent for a period of one year.

Food supplements and mineral premix used in fortification. Given that food supplements and mineral premix are essential in improving nutritional deficiencies, the import duty was reduced from 25 percent to 0 percent for food supplements and mineral premix.

Import duty was reduced from 25 percent to 10 percent on vacuum packing bags for one year to ease packaging by the manufacturers.

All these measures are expected to come into effect on 1st July 2012. These changes, according to the Finance Minister are in conformity with position of the Sectoral Council of Finance and Economic Affairs who recognized the need to take stock and an analysis of the existing duty remission schemes within the region to ensure equity and uniform implementation of intra EAC trade regime.

What does this achieve?

The change that has got rather more attention is of course the increase in PAYE threshold to Ush235,000. The increase was of course a result of relentless lobby by a group of legislators in the interest of helping the poor in the lower tax brackets and of adjusting to inflation. However, it remains to be seen how many people will benefit from this change and whether it will strengthen work incentives for low-earners. Again, the behavioural response to the additional 10% tax on income above Ush120m per year would that of avoidance.  It would be useful to know if the minister has a view as to what proportion of taxpayers should be paying this high rate. The truth is we still do not know the true effect of the additional 10% on revenues. URA needs to examine the current income tax returns and provide information on how much income tax those above 120m are paying.

The “surprise” was the announced reintroduction of VAT on water at 18%. If the justification for the tax was to raise more revenue, such revenue comes at a high social cost. It will make bottled water less affordable to the masses and work against the very course of advancing public health.

Conclusion

The finance minister projects an expansionary budget for FY 2012/13 with a large development focus. Other than addressing the glaring infrastructure deficit that is weighing heavily on the cost of doing business, this budget has sought to address the human development issues and problem of unemployment. However, the achievement is dependent on continued solid growth and improved revenue performance. Given the downward adjustment of budget support in FY 2012/13, and if the disappointing trend in central government receipts continues, this would increase public sector net borrowing in 2012/13 or there will be need to adjust the budget in many ways.

Perhaps one worry for the minister as the dust settles on her second Budget is that in her attempt to achieve a fiscally balanced package she has created some risks. We know pretty much for sure that the increase in the salaries of some civil servants is a huge fiscal commitment. Yet, we do not know with certainty that the most urgent problems in the health sector such as the plight of health workers have been competently addressed by this budget. Worryingly, budget allocation for health sector has reduced to 7.8% in FY 2012/13, from 8.3% in 2011/12, which is half the 15% target enshrined in the Abuja Declaration. We also appreciate that a lot is said in the budget about agriculture but nothing in concrete terms about value addition and improving market access. If the Maputo Declaration on Agriculture and Food Security that urges African governments to increase their agriculture budgets to at least 10% of their national budgets within 5 years means anything (because size of budget is not a panacea to achieving better outcomes) Uganda at 3.8% of the budget allocated to agriculture in FY 2012/13 is far short of the target.

On taxation, we do not know that the 5% increase in withholding tax on income derived from Treasury Bills and Bonds will bring in the Shs.16.3bn or so the minister is banking on, whether it does not carry the risk of making the government paper less attractive to investors. Nor do we know that the 10% excise duty on cosmetics and perfumes will raise the 4.1bn that she has hoped for. Finally, we welcome the announcements about reforming the pension sector and providing start-up capital for the youth and graduates. Given the scale of dissatisfaction associated with accessing the savings by NSSF beneficiaries, and the worsening employment among the youth, these are welcome measures.