EY: 2019/20 Budget to support industrialisation for job creation and shared prosperity

Five males on a discussion panel in a hotel room
From 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. Credit: Ernst & Young

For the third year running, Uganda’s national budget has highlighted industrialisation for job creation and shared prosperity as its 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 budget strategy for financial year 2019/2020 as contained in the national budget emphasises the government’s commitment to promoting industrialisation and skills development, which is intended to lead to job creation and shared prosperity among Ugandans and thus addressing the perennial challenges of unemployment and income inequality.

The major development challenges 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 limited access 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 environmental 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 improving the capacity of manufacturing firms to increase productivity, especially in the agro-processing subsector by providing incentives to support industrial parks and free zones, and 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 capitalisation of the Uganda Development Bank (UDB) and providing affordable credit to SMEs through the Microfinance Support Centre.

The budget also passed new tax amendments that are intended to provide clarity in the interpretation and application of tax laws in order to minimise 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 of 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 industrialisation, job creation, and shared prosperity.

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