1.1 Overall revenue performance July 2014 to April 2015

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2 1.0 Introduction This morning we inspected the Support Mulago Rehabilitation Project at Mulago National Referral Hospital. It commenced this FY 2014/15. This project is aimed at constructing the maternal and neonatal health unit, renovating and equipping the lower Mulago hospital. The rehabilitation work is estimated to last 24 months and the construction budget is planned at US$37.56 million. It is funded by both the African Development Bank (US$70.4 million), Nigerian Trust Bank (15.3 million) and Government of Uganda which is funding three aspects namely oxygen plant (US$1.08m), staff quarters (sh19bn) and Value Added Tax US$4.5m. The progress of the hospital renovations and rehabilitation works is impressive and we are proud that our taxpayers have contributed to this very important work aimed at bringing about structural and performance improvements at the national health institution. Labour productivity and the revenue we collect is dependent on the health of the populace. To ensure that Ugandan citizens have quality healthcare service, the health sector is given priority in the Uganda s medium term expenditure framework with approved expenditure of UGX Bn excluding donor projects, which represents 8.7% of the total approved government budget. A healthy nation is a productive one and this directly relates to a country s economic growth and subsequently revenue performance. There is a direct relationship between the health of a nation s population and the country s Gross Domestic Product and revenue collections. Given its sensitive nature in the economy, the health sector is given tax exemption to enable citizens access affordable medical care. During the period July to April 2015, the human health and social work contributed UGX 99.63Bn and its revenue share was 1.79%. Revenue mostly came from international agencies and Non-Government Organizations (NGOs). 1.1 Overall revenue performance July 2014 to April 2015 During the period of July 2014 to April 2015, URA collected UGX 7,703.00Bn against a target of UGX 7,662.73Bn, representing a performance of %, (UGX 40.26Bn cumulative surplus) and a growth of 18.94% (UGX 1,226.81Bn) compared to the same period last financial year. For the month of April, 2015 specifically URA had a net surplus of UGX 3.76 Bn. Table 1: Comparative collection July April2015 Target July 14-Apr 15 Collection July 14-Apr 15 Surplus/ deficit performance Growth Growth Rate Net URA collections taxes 7, , % 1, % Net Domestic taxes 4, , % % Net international trade taxes 3, , (1.75) 99.95% % Refund from court cases (3.10) Sources: URA Databases Page 1 of 9

3 1.2 Domestic taxes. Domestic taxes net collections for period of July 2014 to April 2015 were UGX 4, Bn against a target of UGX 4, Bn, a performance of %(UGX 45.11Bnsurplus) and a growth of 17.42% (UGX Bn) compared to the same period last financial year. 1.3 Customs taxes (International trade taxes) International trade taxes net collections for the period July 2014 to April2015 were UGX 3,513.74Bn against a target of UGX 3,515.50Bn, a performance rate of 99.95% (UGX 1.75Bn deficit) and a growth of % ( UGX Bn) compared to the same period last financial year. 2.0 Factors that explain revenue performance The main contributors to the growth in domestic tax revenue are ; Corporation tax: Boosted by improvement in business growth, arrears recovery and collaboration with local authorities. The improvement in income tax declarations from collaboration with local authorities. The Tax Register Expansion Program (TREP) initiative has yielded UGX 0.80Bn and is expected to continue in the 4 th quarter of the FY 2014/15. So far, 21,047 individual taxpayers have been registered for taxes including 20,368 in Kampala based stations and 679 outside Kampala. Improvement in business growth leading to a number of companies that did not declare and pay provisional tax during last financial year to make remittances this financial year especially in the; financial and insurance services (UGX 38.07Bn), information and communication (UGX 34.69Bn), manufacturing (UGX 25.78Bn), wholesale and retail trade (UGX 20.02Bn), and electricity and gas sectors (UGX 13.68Bn). Arrears recovered as a result of revenue administration interventions amounting to UGX 37.23Bn. Withholding tax: Growth in withholding tax collection especially in general supplies, Government payments, management and professional fees and dividends: Withholding taxes on Government were mainly boosted by increased payment to contractors like the national ID project. Withholding taxes on general supplies were mainly boosted by increased payment in the; telecommunication sector (UGX 7.8Bn), electricity sector (9.12Bn) due to roll out of YAKA and infrastructure maintenance. Page 2 of 9

4 Withholding taxes on management and professional fees were boosted by increased payment in the banking sector (UGX 3.64Bn) and Transport subsector (UGX 2.38 Bn). Withholding taxes on dividends were boosted by increased payment in the banking sector (UGX6.00Bn) and telecommunication sector (UGX 9.75Bn). Withholding taxes on Casino winnings were boosted by increase in winnings yielding UGX1.15Bn. The main contributors that affected domestic tax revenue are ; Value Added Tax (VAT): Increased offset (UGX 74.60Bn) in electricity and input claim (UGX 16.68Bn) in water affected VAT performances. Electricity sector remittance declined by UGX Bn due to increased imports of treated poles, electric meters, and transformers as a result of capital investment in replacement of infrastructure. The water sector remittance declined by UGX 3.13Bn due to increased expenditure on capital investments project (35Mn Euro) made on chemicals and increased imports of steel pipes and polymers. Excise duty: The tax head was mainly affected by international calls levy and beer. The introduction of one area network launched in January covering Uganda, Kenya, and Rwanda affected both 45% of the International calls received in the country and as result there was a decline in remittances by the players in the phone talk time sector. A shift in the production line from the 60% rate to the 20% rate category. During the period of July 2014-March 2015, beer sector increased production of beer made from the lower excise rate category of malt from Uganda by 99%. Pay As You Earn (PAYE): Decline in remittances from the oil and gas sector affected PAYE due to delays in the renewals of the contracts. As a result of the delay, remittances declined by UGX 29.68Bn during the period July 2014 to April 2015 compared to the same period last financial year. The main contributors to the growth in customs revenue are ; Exchange rate depreciation: The Uganda shillings depreciated continuously against the dollar in the period July to April The average exchange rate for the period was UGX 2, above the projected UGX 2, leading to a revenue gain of UGX Bn. An increase in exchange rate is expected to increase international trade revenue performance in the short run but affect revenue in the long run due to increased stocks in the warehouses and increased prices of merchandise. Page 3 of 9

5 VAT on import: Growth in VATable imports due to efficient administrative measures under automated customs valuation and Single Customs Territory (SCT) which has simplified the processes and improved the turnaround time. VATable imports registered a growth of % (UGX 1,168.87Bn) during the period of July to April 2015 as compared to the same period last financial year. Major items that registered growth in VAT on importation during the period include:palm oil, hot rolled/steel, polymers,wheat, and automatic data processing machines. Petroleum duty: Growth in fuel volumes. Fuel volumes registered a growth of 9.49% ( Mn litres) during the period of July 2014-April In addition, taxable fuel volumes grew by 9.40 % compared to the annual projection of 8.7 percent in FY 2014/15. This resulted from the Single Customs Territory (SCT) which has simplified the customs processes and improved the turnaround time. The main contributors that affected customs revenue are ; Non-fuel Imports: Lower than anticipated growth in non-fuel imports. Non-fuel Imports registered a growth of (5.09%) from US$4,017.52Mn during the period of July April 2014 to US$4,222.11Mn during the period of July April 2015 which was below the projected growth of 14.4%. Import duty: Decline in the share of goods that attract duty rates to total imports. Dutiable goods decreased to28.34% during the period of July 2014 April 2015 from30.81% posted during the same period of financial year. The major items that registered decline in import duty during the month of July April 2015 include; iron/steel structures, cigarettes, bituminous mixtures, telephone receivers and cartons, boxes. Effect of Free Trade Area under COMESA. Imports from COMESA member states are not charged import duty on entry into the country. Goods from Egypt worth UGX Bn came in the country at zero rate and the value in Cost Insurance and Freight increased by UGX 21.84Bn during the period of July 2014 to April 2015 compared to the same period last financial year. Currently, a bulk of imports from Egypt have flooded the Kenya market and the market share of four major companies has been reduced. Page 4 of 9

6 3.0 Macroeconomic indicators The macro-economic indicator: economic (Real GDP) growth rate, Inflation, exchange rate, fuel import and non-import volumes as shown in the table below. Table 2: Key performance of the macro assumptions performance Macro Assumptions 2010/ / / / /15 Outturn 2014/15 Outturn Outturn Outturn Outturn Projections Exchange rate (UGX per US Dollar) 2, , , , , Inflation (Headline) (%) Change in fuel import volumes (%) Change in non-fuel imports (US$) (%) Real GDP (MP) growth (%) Source: Ministry of Finance and Bank of Uganda 3.1 GDP growth rate at market price The real GDP performance for the period was between % which was in line with the medium term projected growth. This performance is explained by: growth in private sector borrowing especially during the first half of the financial year, higher public investment spending and private consumption. This suggests that the current growth of the economy has supported tax revenue performance as it was projected. 3.2 Inflation The average annual headline inflation for the period was 2.1% compared to 7.0 % recorded in the same period last year. It was below the annual projection of 6.9 % but still within the medium term target of 5%. Inflation registered an upward trend mainly due to the exchange rate depreciation on the prices of imported goods but generally remained stable for the period within single digit as a result of a decline in crude oil prices and the good harvest that reduced the food prices. The current low levels of headline inflation has boosted domestic consumption which has a positive impact on indirect domestic taxes especially VAT with a positive growth in revenue collections of over 10.1 %. 4.0 Performance of policy measures During the budget reading of FY 2014/15, the government made tax policy pronouncements aimed at generating revenue, improving compliance and providing avenues for taxing hard-to- tax sectors. The policy pronouncement intended to broaden the tax base by shrinking the exemptions regime in both the VAT and Income tax to enable generation of up to UGX 375.9Bn and propel the country s tax to GDP ratio to 14%. Page 5 of 9

7 Table 3: Summary performance of tax measures for July-April 2015 Tax head Annual target(ugx Bn) Progress (UGX Bn) Progress as % of target VAT Excise duty Income tax International trade Total Source: URA Data Base Analysis conducted on policies for VAT, excise duty and Income tax policies indicate a total of UGX (77.36% of the annual target) has so far been realized. VAT measures have yielded UGX Bn, excise duty measures yielded UGX 92.74Bn and Income tax measures yielded UGX 7.47Bn and International trade taxes UGX 39.94Bn. 5.0 Enforcement measures for period of July 2014-April 2015 Smuggling brings harm to the economy like discouraging legal imports and reducing the volume of revenues collected from duties and levies by an economy; smugglers, see this as a quick way of getting rich. Enforcement interventions are implemented by the authority to curb this practice and various items have been intercepted and the arrested smugglers charged to discourage the public from such acts. Enforcement interventions in the period of July 2014-April 2015 yielded UGX 22.86Bn, with a total of 4,757notices of seizure for both dutiable and non-dutiable goods issued. Figure 1: Revenue recovery by nature of offences for the period July to April 2015 concealment 1% Other 17% Out right smuggling 14% Mis declaration 31% Under Valuation 37% Sources: URA Databases Page 6 of 9

8 During the period of July 2014-April 2015, the offence of undervaluation contributed highest at 37% (UGX 8.64Bn) to the total revenue recoveries, followed by mis-declaration that contributed 31% (UGX 7.21Bn). Other offences contributed 17% (UGX 3.96Bn), outright smuggling contributed 14% (UGX 3.3Bn) and concealment contributed 1% (UGX 0.3Bn). The top risky items according to revenue recovered include: motor cycle spare parts, hardware, electronics, foreign registered vehicles garments, school bags, mobile phones, motor vehicle spares, tiles, human hairpieces e.t.c 6.0 Regional comparison for EAC countries Regional tax to budget for EAC Countries One of the other measures of revenue administration efficiency is Revenue to Budget. This is the extent to which revenue funds the Government expenditure for a given year of income. For the year of income 2013/14 URA contributed 70.20% of budget compared to 69.29% in Kenya, 45.50% in Rwanda, 54.14% in Tanzania and 77.83% in Burundi. Regional revenue comparison for EAC Countries Uganda Revenue Authority (URA) performed above target during the period of July- April 2015 while the rest of the Revenue Agencies in the EAC were below target. Figure 2: Regional Performance Comparison for EAC Countries for July April Performance rate(%) Growth Rate(%) URA RRA KRA TRA Sources: URA Databases In terms of revenue performance against the target: Uganda Revenue Authority (URA) registered a performance of % in net revenue mobilization; Rwanda Revenue Authority (RRA) at 95.40%; Kenya Revenue Authority (KRA) at 93.90%; and Tanzania Revenue Authority (TRA) at 86.80%. Page 7 of 9

9 In terms of revenue growth rate: URA registered a growth of 18.94% during the period of July April 2015 compared to the same period last Financial Year; RRA registered a growth of 12.70% while KRA registered a growth of 9.90% and TRA registered a growth of 8.20%. 7.0 May 2015 outlook The net revenue collections target for the FY2014/15 is UGX 9,576.59Bn, so far UGX7, Bn as at the end of the period July to April 2015 representing 80.44% of the annual target. URA is on right track and very confident that it will surpass the annual target through the implementation of the various policy and administrative measures. Finally, I conclude by expressing gratitude for the support we have received from the key stakeholders including the Government and parliament. I also wish to thank the media for continuing to highlight URA efforts aimed at improving tax compliance. I additionally thank taxpayers who have consistently taken steps to remit their taxes voluntarily as part of their noble civic duty. I wish to encourage others to follow suit by supporting our motto Developing Uganda Together. Page 8 of 9