REVENUE PERFORMANCE REPORT FY 2016/17 15 th January 2017

Transcription

1 REVENUE PERFORMANCE REPORT FY 2016/17 15 th January 2017 i

2 Table of contents List of tables... ii List of Figures... iii Highlights of revenue performance Overall revenue performance from July to December FY 2016/ Domestic taxes performance from July to December FY 2016/ Direct domestic taxes performance from July to December FY 2016/ Indirect domestic taxes performance from July to December FY 2016/ International trade taxes performance from July to December FY 2016/ Performance of administrative measures from July to December FY 2016/ Policy measures performance from July to December FY 2016/ Macroeconomic performance from July to December FY 2016/ Revenue performance by sector from July to December FY 2016/ International trade report Annexes i

3 List of tables Table 1: Revenue performance of major tax heads from July-December FY 2016/17 3 Table 2: Direct domestic tax head performances from July to December FY 2016/178 Table 3: Trends analysis for growth rates of international trade taxes for December Table 4: International trade performances from July to December FY 2016/17 in detail 18 Table 5: Performance of taxpayers' segments (UGX Bn) July-December 2016/ Table 6: Growth in the taxpayer register: July-December Table 7: Taxpayer expansion per tax head: July 2016-December Table 8: Filing ratios for July-December FY 2016/ Table 9: Audit performance by sector for July-December Table 10: Revenue recovery by nature of offences in the first half of FY 2016/17 (UGX Bn) 21 Table 11: Total arrears status as at end of December Table 12: Outstanding Domestic arrears status as at end of December Table 13: Performance of tax measures for FY 2015/ Table 14: Sector total sales for half year 2016/ Table 15: Half year FY2016/17 sector revenue performance Table 16: Imports from the EAC countries (UGX Bn): July to December Table 17: Top sources of imports from the rest of the world: July to December Table 18: Leading destination of Uganda s exports (UGX Bn): July to December Table 19: Leading destination of re-exports (UGX Bn): July to December ii

4 List of Figures Figure 1: Net revenue collection to target (UGX Billions)...2 Figure 2: Trend analysis of net revenue collection from 2012/13 to 2016/ Figure 3: Gross domestic revenue collection to target (UGX Billions)... 4 Figure 4: Trend analysis of domestic taxes collection for July-December 2012/13 to 2016/17 5 Figure 5: Trend analysis of direct domestic taxes collection for July-December 2012/13 to 2016/17 7 Figure 6: Trend analysis of indirect domestic taxes collection for July-December 2012/13 to 2016/179 Figure 7: Collections to target in the manufacturing sector (UGX Bns) July-December 2016/17 11 Figure 8: Collections to target in the service sector (UGX Bns) July-December 2016/17 12 Figure 9: Sector performance of Excise Duty (UGX Bn): July-December FY2016/17 13 Figure 10: Performance of tax yield of the top imported items (UGX Bn): December17 Figure 11:Re-exports volumes in UGX Bn: July-December Figure 12: Movements in lending and Central Bank Rate Figure 13: Half year headline Inflation and exchange rate movements Figure 14: Uganda s Balance of Trade (UGX Bn): July to December Figure 15: Top sources of imports from the EAC from July to December Figure 16: Top sources of imports July to December Figure 17: Top sources of exports from July to December Figure 18: Contribution of the leading destination of re-exports (%): July to December iii

5 Highlights of revenue performance Net revenue collections: The collections were UGX 1, billion in December 2016, performing at %, posting a surplus of UGX billion. A growth rate of 8.81% was registered compared to December Cumulatively, UGX 6, billion was collected from July to December 2016 registering a growth of 10.54% compared to the same period in The collections were UGX billion below target. Domestic collections: The net domestic revenue collections in December 2016 were UGX billion with a surplus of UGX 33.5 billion and a performance of 103.7%.This contributed to the cumulative collections of UGX 3, billion in the first six months of 2016/17, with a surplus of UGX billion. International trade performance: International trade net collections were UGX billion in December 2016, performing at 95.82%, with UGX billion below target. Cumulatively, UGX 2, billion was collected from July to December 2016 registering a growth of 6.5% compared the same period in However, the collections were UGX billion below target. The deficit performance of international trade taxes was due to a decline in growth of import volumes, decline in tax yield from the major imported items and an increase in warehoused goods destined for re-exports. Administrative initiatives: The initiatives implemented from July to December 2016, including the tax register expansion program led to a growth in the tax register by 6.71% (60,536 taxpayers) contributing UGX billion. 1,082 audits were conducted yielding UGX billion in collections. Management of tax arrears yielded UGX billion. Performance of policy measures: By the end of December 2016, a total of UGX billion (64.6 % of the annual target) was realized from the policy measures passed at the beginning of the FY 2016/17. The highest performance was on the policy measures on excise duty with UGX billion realized (78.9% of the annual target). January revenue outlook: The net target is UGX 1, billion of which UGX billion has been collected as at 15th January

6 1.0 Overall revenue performance from July to December FY 2016/17 December 2016: The net revenue collections were UGX 1, billion. These were UGX billion above target registering a performance rate of %. In comparison to the same month last financial year, a growth of 8.81% was attained. July to December 2016: In the first 6 months of FY 2016/17, the net revenue collections were UGX 6, billion, a performance of 97.33%. Despite the fact that the collections were UGX billion below target, a growth rate of 10.54% was registered compared to the same period last financial year. The below target net revenue performance is attributed to the deficit of UGX billion registered in international trade collections. The revenue collections to target in the period are depicted in figure 1 below. Figure 1: Net revenue collection to target (UGX Billions) 7,000 6,000 5,000 4,000 3,000 6, , ,000 1,000 1, , December 2016 July 2016 to December 2016 Target Collection Source: URA Databases (Revenue tables December 2016) A breakdown of the performance of the broad tax heads contributing to net revenue collections is shown in table 1 below. In the period July to December 2016, direct domestic taxes and international trade collections performed below target while the other tax heads posted surpluses. 2

7 July -December Table 1: Revenue performance of major tax heads from July-December FY 2016/17 Revenue Component December performance UGX Bn July - December 2016 performance UGX Bn Direct Domestic Direct revenue target , taxes Actual outturn , Achievement rate % 98.47% Indirect domestic taxes Non-Tax Revenue Fees and License International trade taxes Indirect revenue target , Actual Outturn , Performance rate 97.8% % Non-Tax Revenue target Actual Outturn Achievement rate % % Fees and License target Actual Outturn Performance rate % % International trade , revenue target Actual Outturn , Performance rate 95.86% 92.73% Source: URA Databases (Revenue tables December 2016) In terms of the trend analysis for the period July to December for the last five years, the net revenue collections have consistently grown. This is shown in figure 2 below. Figure 2: Trend analysis of net revenue collection from 2012/13 to 2016/ /13 3, /14 3, /15 4, /16 5, /17 6, ,000 2,000 3,000 4,000 5,000 6,000 7,000 Revenue collections (UGX Bn) Collections (UGX Bn) Source: URA Databases 3

8 Period 2.0 Domestic taxes performance from July to December FY 2016/17 The gross domestic taxes collections in December 2016 were UGX billion, a contribution of 26.5% to the cumulative collections of UGX 3, billion from July to December The domestic collections were UGX billion above target in December 2016, which significantly contributed to the cumulative surplus of UGX billion registered in the first six months of FY 2016/17. The domestic taxes performance was at % and % for December 2016 and December-July 2016 respectively. Compared to the previous financial year, growth rates of 14.7% and 13.84% were achieved in December and December-July 2016 respectively. The gross domestic revenue collections to targets in the period are depicted in figure 3 below. Figure 3: Gross domestic revenue collection to target (UGX Billions) December July- December , , ,000 1,500 2,000 2,500 3,000 3,500 4,000 Revenue collections (UGX Bn) Collections (UGX Bn) Target (UGX Bn) Source: URA Databases In terms of the trend analysis for the period July to December for the last five years, the gross domestic taxes revenue collections have consistently grown. This is shown in figure 4 below. 4 P a g e

9 Revenue collections (UGX Bn) Figure 4: Trend analysis of domestic taxes collection for July-December 2012/13 to 2016/17 4,000 3,500 3, , ,000 2,500 2,000 1, , , ,500 1, / / / / /17 July - December Source: URA Databases 5 P a g e

10 2.1 Direct domestic taxes performance from July to December FY 2016/17 In December 2016, a surplus of UGX 6.35 billion was registered in direct domestic taxes collections. UGX billion was collected in the month, posting a growth rate of 11.52% compared to the same month last financial year. Cumulatively, UGX 1, billion was collected from July to December However, the collections were UGX billion below the target. In comparison to the same period last financial year, a growth of 12.84% was attained. In the period July to December 2016, surpluses were registered in; PAYE (UGX billion), tax on bank interest (UGX 43.4 billion), rental tax (UGX 5.75 billion) and Casino tax (UGX 4.55 billion) while deficits were registered in; withholding tax (UGX billion), corporation tax (UGX billion), presumptive tax (UGX billion) and other income (UGX 4.36 billion). The surplus that was registered in direct taxes (PAYE, Tax on bank interest rental tax and Casino tax) resulted from; a) Recoveries made from municipalities and Local governments owing to increased enforcement actions. b) Bonus payments from key players contributed to the surplus in PAYE c) Increase in the issuance of government securities by 21% since the turn of the FY 2016/17, has contributed to the surplus in tax on bank interest. d) Administrative efficiency which increased collections from the public sector and rental taxes. e) Close monitoring of the key players in the casino tax category leading to increased remittances from taxpayers. The deficit which was registered in corporation tax, withholding tax, and presumptive was due to; a) The general decline in demand for private sector credit especially within the top two sectors (wholesale and retail trade and manufacturing) mirrors the health of the economy. This has contributed to a slowdown in business thus affecting collections in corporation and presumptive tax. b) Deficits registered in withholding tax on dividends, government payments and foreign transactions due to delayed government releases and cash flow problems for leading contributors. Detailed justification of direct taxes performance is provided in table 2 on page 8. Based on the trend analysis of the last five years, direct domestic taxes collections have continuously grown. However, the growth rates have been fluctuating over the period. 6 P a g e

11 UGX Bns % Figure 5: Trend analysis of direct domestic taxes collection for July-December 2012/13 to 2016/ / / / / /17 Collections Growth rate July-December 0.0 Source: URA Databases 7 P a g e

12 Table 2: Direct domestic tax head performances from July to December FY 2016/17 s/n Tax Head Coll for Dec 16 Dec 16 Coll for Jul 16- Dec Jul 16- July to December 2016 performance commentary Dec 16 Surplus/ Deficit Growth Jul 16 Dec Surplus/ Deficit Dec 16 Growth 1 PAYE % % The performance was influenced by: a. Recoveries made from municipalities and Local governments owing to increased enforcement actions. b. Bonus payments from key players contributed to the surplus in PAYE 2 Withholdin g Tax 3 Corporatio n Tax Presumpti ve tax Other Income Tax (7.75) (82.72) -6.68% a. The shortfall resulted from withholding tax on dividends, government payments and foreign transactions. Collections from foreign transactions declined by 41% based on the fact that profits were repatriated in previous financial year due to anxiety over elections, which isn t the case in the current financial year. b. Government supplies declined by 21% (39.59) 0.59% (78.73) 1.74% The period performance was influenced by: a. The general decline in demand for private sector credit especially within 0.45 (7.02) (26.43) - the top two sectors (wholesale and retail trade and manufacturing) mirrors the health of the economy. This has contributed to a slowdown 9.09 (0.11) 41.5% (4.36) 7.11% in business thus affecting collections in corporation and presumptive tax. b. Credit brought forward by some key players leading to nil provisional returns. Income Tax Rental 4 Tax on Bank Interest % % Administrative efficiency including sensitization carried out in the sector and effective monitoring led to having new clients onto the register and leading to a growth in remittances by56.35% % % Increase in the issuance of government securities by 21% since the turn of the FY 2016/17, has contributed to the surplus in tax on bank interest. 5 Casino Tax % % The continued tax education and monitoring of the key players in the sector explains the Increase in remittances from taxpayers in the sector 8 P a g e

13 UGX Bns % 2.2 Indirect domestic taxes performance from July to December FY 2016/17 December 2016 Indirect domestic taxes collections for December 2016 were UGX Bn against a target of UGX Bn registering a performance of 97.80% (UGX 5.00 billion deficit). Compared to same month last financial year, indirect domestic taxes grew by 14.92% (UGX billion). July December 2016 Indirect domestic taxes collections for period July- December 2016 were UGX 1, billion against a target of UGX 1, billion registering a performance of % (UGX billion surplus) and a growth of 16.82% (UGX billion) compared to the same period last financial year. In terms of the trend analysis of the last five years, indirect domestic taxes collections have continuously grown. However, the growth rates have been fluctuating over the period. Figure 6: Trend analysis of indirect domestic taxes collection for July-December 2012/13 to 2016/ / / / / /17 July -December 0 Collections Growth rate Below are the indirect domestic tax head performances for the period of July- December 2016 in detail. 9 P a g e

14 2.2.1 VAT Performance from July to December FY 2016/17 In December 2016, VAT collections amounted to UGX billion registering a performance of % with a surplus of UGX 4.21 billion. There was growth of 15.97% (UGX billion) compared to same month last financial year. This contributed to the cumulative collections of UGX billion for the period July to December 2016, with a surplus of UGX billion and a performance of %. There was growth of 16.37% compared to same period last financial year. Further analysis is provided below based on the VAT performance by sectors Manufacturing Manufacturing sector collections for the period of July to December were UGX billion against a target of UGX billion, a performance of % (UGX surplus). The performance is mainly attributed to surpluses in cement, bottled water, milk and soft drinks collections as shown in figure 6 below: The surplus was due to the upward shift in the cement demand by the construction sector as a result of ongoing projects like the Southern Bypass, expansion of the Northern bypass, Mukono-Katosi road, dam projects like Isimba dam. On the other hand, the deficit registered in beer and cigarettes collections can be attributed to the iincrease in imported goods which are substitute for domestically produced goods thus affecting the beer and cigarette local sales. 10 P a g e

15 Sub sectors Figure 7: Collections to target in the manufacturing sector (UGX Bns) July-December 2016/17 milk Cigarettes Bottled Water Water Soft Drinks Cement Sugar Beer Revenue collections (UGX Bn) Collections Target Source: URA data bases Service sector The service sector collections for the period of July to December 2016 were UGX billion against a target of UGX billion, a performance of 94.80% (UGX Bn deficit). This performance of the sector was influenced by the deficits registered in electricity subsector (UGX Bn) as shown in figure 7 below. This has been influenced by Increased offsets arising from continued expansion and investments in infrastructure a head of the completion of Karuma and Isimba power generation dams. 11 P a g e

16 Sub sectors Figure 8: Collections to target in the service sector (UGX Bns) July-December 2016/17 Agriculture Insurance and Financial services Water Phone Talk Time Electricity Revenue collections (UGX Bn) Collections Target Source: URA data bases Other key sectors In the other key sectors, a suplus was registered in construction. However the others registered deficts. These include the Wholesale & retail trade;, Hotels & restaurants, Transport & communications, Real estate activities, Public administration & defence, Mining & quarrying (excluding oil and gas) and Oil and Gas. The below target perfromance can be attributed to the constrained aggregate demand over the past six months which is a follow-through from the previous financial year. This has led to reduced sales within the economy. 12 P a g e

17 Excisable Sub-sectors Local Excise Duty performance from July to December FY 2016/17 Local Excise collections in December 2016 were UGX billion, registering a performance of 87.10%. A growthof 12.27% was attained, much as the collections were UGX 9.21 billion below target. Cumulatively, Local Excise collections for the period of July to December 2016 were UGX Bn against target of UGX billion, registering a performance of 92.25% (UGX billion deficit) and growth of 17.84%) compared to same period last financial year. The sector performance of excise duty is shown in figure 8 below. Figure 9: Sector performance of Excise Duty (UGX Bn): July-December FY2016/17 Sugar Bank charges Mobile money transfers Bottled Water Cosmetics Cement Cigarettes Spirits/Waragi Soft Drinks International Calls Beer Phone Talk time Revenue collections Collections Target Source: URA databases 13 P a g e

18 The below target performance of Local Excise Duty is mainly attributed to deficits in International calls (UGX 15.87Bn), Phone talk time (UGX 5.78Bn), Mobile money transfers (UGX 4.65Bn), Sugar (UGX 4.54Bn) and Cigarettes (UGX 2.27 Bn). This is based on the following reasons. a. As continously higlighted, the current exemption of LED on calls made within the Northern corridor [Kenya, Rwanda and South Sudan] affect LED revenue from the sector. Sim boxing vice that allows parties to communicate internationally while maintaining the local country code has affected LED on international calls. b. The drive across telecom companies towards promoting their brands using free data and voice bundles to their customers afftected LED collections. For example, MTN s data share that gives free data and voice bundles that are entirely for promotional purposes and don not attract LED. c. A fall in demand due to an increase in sugar prices because of a reduction in the supply of sugar as a result of long dry season affected production 14 P a g e

19 3.0 International trade taxes performance from July to December FY 2016/17 December 2016 International trade taxes collections for the period of December 2016 were UGX Bn against a target of UGX Bn, a performance rate of 95.86% (UGX Bn deficit) and a decline of 1.65 % (UGX 7.43 Bn) compared to the same period last financial year. Surpluses were registered in import duty (UGX 4.29Bn), petroleum duty (UGX 1.74Bn), VAT on imports (UGX 0.32Bn) while deficits were registered in withholding taxes (UGX 12.91Bn), excise duty (UGX 3.59Bn), surcharge on imports (UGX 3.17Bn), temporary road licenses (UGX 2.76Bn), infrastructure levy (UGX 2.15Bn) and export levy (UGX 0.95Bn). Table 3: Trends analysis for growth rates of international trade taxes for December % 80.00% 60.00% 40.00% 20.00% 0.00% % % % Dec_12 Dec-13 Dec-14 Dec-15 Dec-16 VAT on imports Petroleum duty Import duty Excise duty Source: URA Data Base The year to year growth rates show a decline in the revenue collection for all the major tax heads (93% of the customs revenue) during the month of December Petroleum and excise duty registered the greatest year to year decline in percentage points. For example petroleum duty and excise duty registered a year to year decline of and percentage point respectively. July -December 2016 International trade taxes collections for the period July to December 2016 were UGX 2,590.20Bn against a target of UGX 2,793.33Bn, a performance rate of 92.73% (UGX Bn deficit ) and a growth rate of 6.47 % (UGX Bn) compared to the same period last financial year. A surplus was registered in petroleum duty (UGX 81.58Bn) while deficits were registered in VAT on imports (UGX Bn), withholding taxes(ugx 60.92Bn), excise duty (UGX Bn), import duty 15 P a g e

20 (UGX 32.04Bn), infrastructure levy (UGX 22.96Bn), temporary road licenses (UGX 17.89Bn), surcharge on used imports (UGX 5.44Bn) and export levy (UGX 2.77 Bn). Table 9: Trends analysis for international trade taxes (%): July -December 40.00% 30.00% 20.00% 10.00% 0.00% % Jul-Dec 2012 Jul-Dec 2013 Jul-Dec 2014 Jul-Dec 2015 Jul-Dec % % VAT on imports Petroleum duty Import duty Excise duty The year to year growth rates show a decline in the revenue collection for all the major tax heads (92% of the customs revenue) during the period July to December Vat on import and excise duty registered the greatest year to year decline in percentage points. For example Vat on import and excise duty registered a year to year decline of and percentage point respectively. International trade taxes collections were expected to grow by 14.80% but registered a growth of 6.47%. The performance during the period July to December 2016 is attributed to: a) Low import volumes. Import volumes registered a meagre growth of 0.79% in UGX while a growth of 2.05% was registered in USD compared to the projected growth of 9.1% during the period of July -December 2016 compared to the same period last year. b) Decline in tax yields of the major items. Example of major items include; good transport vehicles, wheat, telephone apparatus, beer and television receivers as illustrated in the figure below: 16 P a g e

21 Value of reexports(ugx Bn) Figure 10: Performance of tax yield of the top imported items (UGX Bn): December (10) (20) (30) Good transport vehicles, Wheat Telephone apparatus Beer Televison Receivers Jul-Dec 2015 Jul-Dec 2016 Decline Source: URA Data Base c) Increase in warehoused goods destined for re-exports. A lot of imports are warehoused largely for re-exports. Warehoused goods registered a growth of 6.62% from USD Mn during the period of July- December 2015 to USD Mn during the period of July-December Figure 11:Re-exports volumes in UGX Bn: July-December Source: URA Data Base Jul-Dec 2012 Jul-Dec 2013 Jul-Dec 2014 Jul-Dec 2015 Jul-Dec 2016 re-export Re-exported goods registered a growth of 37.01% from UGX Bn during the period of July- December 2015 to UGX Bn during the period of July-December For example sorghum imported from Rwanda is currently being re-exported to South Sudan, palm oil imported from Indonesia to is currently being re-exported to South Sudan and motor vehicles (goods and passenger) imported from Japan are currently being re-exported to South Sudan and Rwanda. Below are the tax head performances for the period of July June 2016 in detail 17 P a g e

22 Table 4: International trade performances from July to December FY 2016/17 in detail s/n Tax Head Coll for Dec 16 Dec 16 Surplus/ Deficit Dec 16 Growth Coll for Jul 16 Dec 16 Jul 16- Dec 16 Surplus/ Deficit Jul 16- Dec 16 Growth 1 VAT on Imports July to December 2016 performance commentary % (123.42) -3.70% The performance is attributed to decline in VATable imports. The contribution of VATable imports to the total imports declined by 5.67 percentage points from 62.78% in July to December 2015 to 57.11% during the period July to December Petroleum duty % % The fuel performance was attributed to growth in fuel volume. Fuel volumes registered a growth of 2.48% worth 21.82Mn litres during the period of July- December 2016 compared to the same period last year. 3 Import duty Despite a surplus in the collection, the growth in fuel volumes was less than the projected by 5.1 % Diesel imported registered a growth of 6.74% (26.74 million litres) during the period of July- December 2016 compared to the same period last year. Petrol imported registered a decline of 0.62% (2.42 million litres) during the period of July- December 2016 compared to the same period last year. Kerosene imported registered a decline of 10.59% (3.30 million) litres during the period of July -December 2016 compared to the same period last year % (32.04) 8.57% The performance is attributed to lower than expected performance of dutiable imports. Dutiable imports was expected to grow by 15.30% during the period of July to December 2016 but registered a growth of 8.57%. Dutiable goods declined by 7.27 percentage points from 10.56% during the period of July to December 2015 t0 3.28% during the period of July to December Excise duty (3.59) -1.32% (35.13) -1.68% The performance is attributed to a significant decline of excisable goods during the period of July to December 2016 compared to the same period last year. Example, beer collection declined by UGX 1.54 Bn during the period of July to December P a g e

23 4.0 Performance of administrative measures from July to December FY 2016/17 In the first half of FY 2016/17, various initiatives including monitoring the different taxpayer segments, expanding the taxpayers register, monitoring the filing ratios, audit, arrears were carried out. These were aimed at encouraging voluntary taxpayer compliance and influencing taxpayer s behaviour. Analysis of the initiatives is provided below 4.1 Segmentations of taxpayer In the period July to December 2016, collections from LTO and PSO were above target. and STO registered a growth of 134.9% and 35.9% respectively although LTO and MTO performed with a slightly decline during the period. This is depicted in table 10 below. Table 5: Performance of taxpayers' segments (UGX Bn) July-December 2016/17 Collection Segment Target Jul Dec.2016 Jul Dec Surplus/De ficit July-Dec'2015 Collections Growth in collections Large Taxpayers Office (LTO) 2, , , Public Services Office (PSO) Medium Taxpayers Office (MTO) (9.35) Small Taxpayers Office (STO) (22.96) Total 3, , , Source: URA Databases. (etax reports as at 08/1/2017) 4.2 Tax register The tax register grew by 6.71% (60,536 taxpayers) in the period of July to December 2016 as indicated in the table 11 below. Table 6: Growth in the taxpayer register: July-December 2016 Registration type As at 30th June 2016 As at 31st December 2016 Increase/decrease Non individual 72,988 79,243 6,255 Individual 829, ,632 54,281 Total 902, ,875 60,536 Source: URA Databases. (etax reports as at 08/1/2017) Tax register growth can also be shown in table 10 below in terms of the different tax head categories. 19 P a g e

24 Table 7: Taxpayer expansion per tax head: July 2016-December 2016 Tax Head As at 30th June 2016 As at 31 December 2016 Increase/Decrease Income Tax 1 750, ,147 60,565 Motor Vehicle 738, ,397 47,902 Imports and Exports 320, ,920 15,591 Stamp Duty 307, ,661 21,828 Value Added Tax 16,299 16, PAYE 17,575 18,943 1,368 Withholding Tax 3,434 3, Local Excise Duty Gaming And Pool Betting Tax Source: URA Databases. (etax reports as at 08/1/2017) 4.3 Filing ratios Analysis of the filing ratios indicates that the average filing for all tax heads is slightly below target. Efforts were undertaken in the first half of the financial year to improve filing ratios and enforcement on the non-filers. These included the following; a. Enhanced examination of returns of non-filers and enforced on tax due. b. Examination of reconciled ledger balances, enforcing recovery of taxes, identifying suppliers declared in WHT but under declaring income tax. c. Return examination for the top 20% taxpayers. Table 8: Filing ratios for July-December FY 2016/17 Taxpayer segment LTO MTO STO PSO Tax Head PAYE VAT PAYE VAT PAYE VAT PAYE VAT Jul Aug Sep Oct Nov Dec Average Target Source: URA Databases. (etax reports as at 08/1/2017) 4.4 Audit performance 20 P a g e

25 Various administrative initiatives were undertaken to recover outstanding taxes. These were undertaken in both domestic and customs taxes operations Domestic audit performance The total number of cases completed in the first half FY 2016/17 was 953 against the target of 1,193 registering a performance of 79.9%.The value of assessments issued in the period amounted to UGX billion. The audit performance by sectors is shown in table 14 below. Table 9: Audit performance by sector for July-December 2016 Sector performance No of Audits Assessments: Audits Assessments: Inspections Total Amount Agreed Amount Recovered Agriculture Manufacturing Wholesale Accommodation Real Estate Others Totals Source: URA Databases. (etax reports as at 08/1/2017) Customs post clearance audits In the period July to December of FY 2016/17, the total number of audits completed were 129 cases of which 100 cases were comprehensive audits and 29 cases were issue audits. As a result, the total value of assessment amounted to UGX billion of which UGX. 6.61Bn was collected. 4.5 Enforcement A total of 2,841 notices of seizure were issued during the period of July 2016-December 2016, 0f which 2,664 were dutiable goods while 177 were non-dutiable goods. Enforcement Interventions yielded UGX 24.52Bn, during the same period, under valuation was the main offence followed by Mis-declaration, other offences, outright smuggling and concealment Table 10: Revenue recovery by nature of offences in the first half of FY 2016/17 (UGX Bn) Seizures Total Outright Under- Mis- Other Concealment recovery smuggling valuation declaration offences Total 2, Sources: URA Databases (Customs enforcement report) 21 P a g e

26 4.5.1 Top risky items seized. The top risky items included foot wear, garments, LED flat screen television, electrical, stationary items, used motor vehicle spare parts and motor vehicles. 4.6 Arrears management The total arrears stock as at end of December 2016 was UGX 1, billion, of which UGX 1, billion were domestic arrears and UGX billion were customs arrears. This is shown in table 16 below. Table 11: Total arrears status as at end of December 2016 Arrears Non-government arrears 1, Government arrears Total Domestic arrears 1, Total Customs tax arrears Total arrears 1, Source: URA Databases. UGX Bn Domestic tax arrears As at the end of December 2016, the total outstanding total domestic arrears were UGX 1,145.72Bn of which UGX Bn is attributed to Government arrears and UGX. 1,.38.08Bn to Nongovernment as illustrated in table 17 below Table 12: Outstanding Domestic arrears status as at end of December 2016 Arrears UGX Bn Government arrears Government arrears(central &local government) Government arrears( Government undertaking) Non-government arrears 1, Enforcement Action Beyond Station Control Debt Collection Unit Write Off Cases Under Court Total domestic arrears 1, Source: URA Databases. (etax reports as at 08/1/2017) Recoveries made in period July-December 2016 amounted to UGX billion. 22 P a g e

27 4.6.2 Customs arrears At the beginning of FY2016/17, customs arrears were UGX billion. UGX 52.7 billion was outstanding as at end of December P a g e

28 5.0 Policy measures performance from July to December FY 2016/17 During the budget reading of FY 2016/17, the government made numerous tax policy pronouncements aimed at, improving revenue collections and protecting government revenues by closing loopholes in the tax laws and raising tax rates in some areas. Major areas where changes were made include; Excise duties (on Petroleum products, cigarettes, ready to drink spirits, cement, motor spirit (gasoline), and sugar confectionaries), VAT and income tax. The Policies were to be implemented alongside URAs administrative initiatives aimed at boosting taxpayer awareness, expanding the tax register through the TREP, compliance monitoring, enhancing staff productivity and improving business processes. Analyses conducted on policies for excise duty, VAT, income tax policies and adjustments in the NTR instruments indicate a total of UGX Bn (64.61 % of the annual target) was realized. The break down is shown in table 16 below. Table 13: Performance of tax measures for FY 2015/16. Tax Head Annual Target (UGX Bn ) Outturn (UGX Bn ) Achievement % Excise duty VAT Income tax CET Adjustments Non Tax Revenue adjustments Total Source: URA Data bases The highly performing tax measures are; a. Increase excise duty on Petrol and Diesel by Shs. 100 per litre at UGX billion b. Excise duty on ready to drink spirits from 70% to 80% billion c. Excise duty on sugar (From 50Shs to 100Shs per Kg)-14.8 billion 24 P a g e

29 6.0 Macroeconomic performance from July to December FY 2016/17 Background Although Uganda s economy has experienced several external shocks, which have caused significant tremors in the growth projections since July 2016, Uganda economy continues to be resilient although growth is relatively subdued. The GDP growth forecast still remain at 5.5 percent for the FY 2016/17. Key drivers of GDP growth for FY 2016/17 include a strong performance by Uganda s industry and services sectors, as well as a rise in construction activities as major infrastructure projects take shape. The economic resilience despite the domestic and global economic developments can also be attributed to continued focus on containing inflationary pressures and enabling growth by ensuring exchange rate stability and maximising domestic resources mobilisation. 6.1 Demand in the economy The economy has experienced constrained aggregate demand over the past six months which is a follow-through from the previous financial year. The recent release from Uganda Bureau of Statistics (UBOS) indicates a decline in the First Quarter GDP growth by 0.2 percent. This has been further evidenced with the reduced sales within the economy as the table below indicates. Table 14: Sector total sales for half year 2016/17 Sectors Growth (%) 2016 Growth (%) 2015 Agriculture, forestry and fishing Manufacturing Electricity and gas supply Water supply and sewerage management Construction Wholesale and retail trade Transportation and storage Accommodation and food services Information and communication Financial and insurance activities Real estate activities Source: URA databases 6.2 Interest rate developments The outlined monetary and fiscal policies stance as well as the imperfectly competitive structure of our financial system in the country continue to influence pricing in the money market. Whereas the commercial banks lending rates have been fairly stable, they have however remained elevated due to; a large fiscal deficit that gives the banks the option of investing in risk free government 25 P a g e

30 Central Bank Rate Lending Rate securities given the continued perception of high risk involved in lending to the private sector in view of the depressed state of the economy, the generally uncompetitive banking sector where banks are content to serve niche market segments and high operating costs from modernization, outreach expansion and the general low income base of customers. These decisions taken by the commercial banks are to the detriment of the common businessman who has to make an ultimate choice of either acquiring credit at a high rate, or rather make do with whatever he/she has to transact. Figure 12: Movements in lending and Central Bank Rate Central Bank Rate Lending Rate Source: Bank of Uganda As observed in the figure above, the interest rates charged by commercial banks have been falling since February 2016 driven by the expansionary monetary stance being adopted by the central bank to spur aggregate demand and drive growth. Treasury bill rates have also dropped during the same period following the government s deliberate effort to reduce on deficit financing by using the financial sector in the current financial year. This reduction in interest rates is crucial to the business community in accessing cheap credit and also is key input ingredient in business costs thus a benefit to income tax collections. Business people are expected to file optimistic provisional income tax returns as they envisage better business prospects in the coming six months. We do also expect greater demand for private sector credit in the economy following the downward trend of interest rates, as a key driver to domestic production. 26 P a g e

31 6.2 Private Sector Credit In the first half of FY 2016/17, there has been a decline in the demand for credit within the trade and manufacturing sectors, the two leading tax contributing sectors in the economy (these two sectors contribute more than 50% of total revenue collected). It is also further noted that of the top five sectors with the largest share of private sector credit, only personal and household loans posted an improvement in demand for private sector credit. The general decline in demand for credit mirrors the health of the economy. 6.3 Inflation The turn of the second quarter of FY 2016/17 indicates a slight pick-up in headline inflation to 5.7 percent by end of December 2016 largely attributed to increases in food inflation to 10.8 percent. We do however observe that the average headline inflation since the year began is 4.8 percent well within the projected 5.5 percent for the whole financial year. This trend of single digit general price increase is conducive for private sector competitiveness given the fact that other components of the food basket have posted moderate increases in lacked helped by subdued demand in the economy. The downside risks to the inflation trajectory in the coming months remain the exchange rate volatility given the recent upsurge in fuel prices coupled with the continued drought spell with rainfall expected at the end of the third quarter. This is expected to put more pressure on the manufacturing (agro processing) sector which depends on both the agricultural inputs and other imported inputs. This is expected on the other hand to dampen revenue prospects both for in the domestic economy and customs. 6.4 Exchange rate The foreign exchange market over the course of the past six months. Since the turn of September 2016, the shilling has continued to depreciate against the dollar though at a rather slower pace than what was observed in Nonetheless the poor export growth and reduced growth in remittances have been critical downward risk factors of this current phenomenon. It also suffices to note that the global economic trends especially with our key trading partners currently facing economic uncertainties has affected demand for Uganda s exports. 27 P a g e

32 Exchange Rate (UGX/US$) Inflation (%) Figure 13: Half year headline Inflation and exchange rate movements 3, , , , , , , , , , Exchange Rate (Sh/US$) Inflation, (%) Source: Bank of Uganda Despite the depreciation of the shilling since the turn of the year, no great benefit to customs revenue has been realized as it has not been followed up by increases in customs revenue. We do further note that the average market exchange rate since July 2016 is 3,454.8 against a macro projected 3,474.8 which indicates a slight appreciation to the projected rate by 0.5 percent. This has been further worsened by the relative decline in customs value of imported goods due to the drop in commodity prices on the world market. The same is also observed with fuel imports given the recent developments of fuel prices on the global market with a barrel of fuel still averaging US$ a barrel well barrel and below the US$ 49.9 it was in This has not been backed up with increased demand on the local demand. Petrol importation has declined by 0.6 percent compared to the 10.1 percent increased registered in the previous period last year. The same is noted with diesel whose importation has increased by 6.7 percent compared to the 7.5 increase last year. Therefore despite petroleum duty being the only surplus performing tax head among international taxes, it is highly believed that more would be collected the policy adjustments notwithstanding. It is estimated the underperformance in fuel importation has cost the economy close to UGX Bn since July Economic Outlook FY 2016/17 a. Uganda s economic outlook is expected to remain positive with real GDP well within the margins of 5 percent. The domestic downside risk of Uganda s growth prospects remain the 28 P a g e

33 weak shilling and the prolonged drought spell which may advertently drive prices upwards and thus curtail growth in aggregate demand. b. On the global side, the current economic developments in the region with our trading partners may also affect demand for our exports. The upward growth prospects are projected to hinge on the current upsurge in global oil prices that will help inspire confidence in Uganda s oil industry and improve productivity. c. The currently expansionary monetary approach adopted by the central bank is also expected to further lead to a reduction in market interest rates and therefore increase uptake in private sector credit and thus improve domestic production 29 P a g e

34 7.0 Revenue performance by sector from July to December FY 2016/17 The analysis of revenue collection by sector is based on the top 2,000 tax payers that contributed to 87% (UGX 5,260 billion) to revenue collections in the period July to December Revenue contribution of the top five sectors of the economy in the first half FY 2016/17 In the first half of FY 2016/17, the whole sale sector contributed the highest share (28.4%) to the total gross revenue collections. This was followed by the manufacturing sector with a contribution of 26.65% and financial and insurance activities (10.39%). Table 15: Half year FY2016/17 sector revenue performance Sector Net taxes (UGX Billion) % share FY2015/16 FY2016/17 FY2015/16 FY2016/17 Agriculture, forestry and fishing % 0.68% Mining and quarrying % 3.72% Manufacturing , % 26.65% Electricity, gas, steam and air conditioning supply % 3.44% Water supply; sewerage, waste management and % 0.65% Construction % 2.54% Wholesale and retail trade; repair of motor 1, , % 28.40% Transportation and storage % 0.98% Accommodation and food service activities % 0.94% Information and communication % 8.68% Financial and insurance activities % 10.39% Real estate activities % 1.17% Professional, scientific and technical activities % 1.29% Administrative and support service activities % 1.09% Public administration and defence; compulsory % 4.50% Education % 1.37% Human health and social work activities % 1.41% Arts, entertainment and recreation % 0.43% Other service activities % 1.04% Activities of households as employers; % 0.05% Activities of extraterritorial organizations and % 0.32% un sectored % 0.27% Total , % % Source: URA data bases 30 P a g e

35 Value in Bn Months 8.0 International trade report The international trade analysis provides an overview of Uganda s trade position with the rest of world and the EAC based on the value and volume of imports and exports which affects international trade tax collections. 8.1 Uganda s Balance of Trade (BOT) Uganda s balance of trade position recorded a plunge in growth rates by 14.87% (UGX Bn) from UGX 6,190.48Bn during the half year period of FY 2015/16 to UGX 5,270.14Bn during the half year FY 2016/17 due to the imbalance between imports and export trade. Uganda s imports values by cost, insurance and freight (C.I.F) registered an increase in growth rates by 0.79% (UGX 66.11Bn) from UGX 8,325.37Bn in the period July to December 2015 to UGX 8, 91.48Bn during the period July to December 2016 while the exports values by cost, insurance and freight (C.I.F) to the rest of the world grew by 46.21% (UGX Bn) from UGX 2,134.89Bn in during the period July to December 2015 to UGX 3,121.34Bn during the period July to December The unbalanced growth in import value to export value due to unfavourable balance of trade is explained by dependence on fuel imports, net exporter of agricultural products and unbalanced growth between non-dutiable goods and dutiable goods. This partially explains the deficit in revenue collections from international trade tax. Figure 14: Uganda s Balance of Trade (UGX Bn): July to December 2016 July_Dec_ 16 8, July_Dec_ 15 8, July_Dec_ 14 6, July_Dec_ 13 5, July_Dec_ 12 5, (8,000.00)(6,000.00)(4,000.00)(2,000.00) - 2, , , , , BOT Total Value of Export (UGX Bn) Total Value of Imports(UGX Bn) Source: URA Databases 8.2 Uganda s Imports from EAC Uganda s import from the East African Region recorded a decline in growth rates of 10.08% in the half year period of FY 2016/17. This was explained by a reduction in growth rates in the imports 31 P a g e

36 EAC Countries from Kenya by 13.48% and Burundi by 50.38% with exception of imports from Tanzania and Rwanda that grew by 6.38% and 80.76% during the half year period compared to the same period last year as indicated in the table below. Table 16: Imports from the EAC countries (UGX Bn): July to December 2016 Country Jul_ Dec Jul_ Dec 14 Jul_ Dec 15 Jul_ Dec 16 Growth_14 Growth_15 Growth_16 13 Kenya % 13.16% % Tanzania % 5.25% 6.38% Rwanda % 0.72% 80.76% Burundi % % % EAC % 11.59% % Source: URA Databases The major sources of EAC imports for the half year period were from Kenya, Tanzania, Rwanda and Burundi. Besides a reduction in growth rates on imports from Kenya, It contributed the biggest percentage of imports from the region followed by Tanzania Rwanda and Burundi as shown in the figure below. Figure 15: Top sources of imports from the EAC from July to December 2016 Burundi Rwanda Tanzania Kenya Jul_ Dec 16 Jul_ Dec 15 Jul_ Dec 14 Jul_ Dec 13 Source: URA Databases 0.00% 20.00% 40.00% 60.00% 80.00% % % Contribution of Imports from the EAC Countries The top imported items from the EAC region during the period July to December 2016 were; 32 P a g e

37 Kenya o Rolled iron/ non- alloy steel o Salt o Portland cement o Petroleum oils o Medicaments Rwanda o Grain sorghum o Scrap o Hides and skin o Coffee husks and skins o Dried leguminous vegetables Tanzania o Furnishing articles o Rice o Coffee husks and skin o Carboys, bottles and flask o Cartons, boxes and box files Burundi o Sowing seeds, fruits and spores o Beer o Pharmaceutical goods o Scrap o Hides and skins 8.3 Source of Imports from the rest of the world The import volume from the top 5 countries to Uganda s shows an increasing trend in the growth rates during the half year period of FY 2016/17. The increase in imports were attributed to an upsurge in the top imported items such as; Palm oil, wheat, hydraulic turbines, stranded wire, furnishing articles, hot rolled iron or non-alloy steel, persons motor vehicles, military weapons and worn clothing while medicaments, goods motor vehicle, Portland cement, petroleum oils and electrical apparatus registered a decline compared to the same period last year as indicated below. Table 17: Top sources of imports from the rest of the world: July to December 2016 Country Jul_ Dec 13 Jul_ Dec 14 Jul_ Dec 15 Jul_ Dec 16 Growth_14 Growth_15 Growth_16 China % 70.32% 17.60% India % 36.18% % Kenya % 13.16% % Japan % 12.03% 5.72% Indonesia % 20.82% 41.70% Source: URA Databases s The major sources of Uganda s imports during the period were from China, India, Kenya, Japan and Indonesia. China, Japan and Indonesia traded more with Uganda during the period July to December while there was a reduction in trade with India and Kenya as represented by the percentage contribution of these countries to the total imports shown in the figure below. 33 P a g e

38 % Contribution of the top countries Figure 16: Top sources of imports July to December % 25.00% 20.00% 15.00% 10.00% 5.00% Jul_ Dec 13 Jul_ Dec 14 Jul_ Dec 15 Jul_ Dec % China India Kenya Japan Indonesia Top 5 Countries Source: URA Databases The leading imports from the top 5 countries for the period July to December 2016 were; China o Hydraulic turbines o Iron/steel stranded wires o Military Weapons o Electrical apparatus o Pneumatic tyres o Japan o Goods and persons motor vehicles o Hot rolled iron/ nonalloy steel o Portland cement o Passenger motor vehicles o Instruments and appliances used in medical science India o Medicaments o Moto cycles o Insecticides o Furnishing articles o Heterocyclic compound o Indonesia o Palm oil o Oral /dental hygiene preparation o Coconut oil o Uncoated paper o Pneumatic tyres Kenya o o o o o Rolled iron/ non- alloy steel Salt Portland cement Petroleum oils Medicaments 8.3 Uganda exports Uganda s exports volumes by cost, insurance and freight (C.I.F) during the half year period of FY 2016/17 registered a growth of 46.21% from UGX 2,134.89Bn in the period July to December 2015 to UGX 3,121.34Bn during the period July to December The performances were attributed to a significant increase in the top exported items like; coffee, gold, unmanufactured tobacco, fish 34 P a g e

39 Percentage Contribution of the Countries fillet, cocoa beans, port land cement, maize corn, dried leguminous vegetables, milk and milk cream, medicaments and soap while the decrease in exports were majorly registered in the export of tea and leather of bovine, goat and kids in the period. Table 18: Leading destination of Uganda s exports (UGX Bn): July to December 2016 Country Jul_ Dec 13 Jul_ Dec 14 Jul_ Dec 15 Jul_ Dec 16 Growth_14 Growth_15 Growth_16 Kenya % -4.94% % UAE % % 82.97% Rwanda % % % Italy % 10.12% 22.61% DRC % 5.77% 19.27% Source: URA Databases The major destinations of Uganda s exports during the half year period were to Kenya, UAE, Rwanda, Italy and DRC. Export trade was more pronounced with Kenya, UAE, Rwanda, and less prominent with Italy and DRC represented by their percentage contribution to the total exports shown in the figure below; Figure 17: Top sources of exports from July to December % 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% Kenya UAE Rwanda Italy DRC Top Export Countries Jul_ Dec 13 Jul_ Dec 14 Jul_ Dec 15 Jul_ Dec 16 Source: URA Databases The leading exports to the top 5 countries for the period July to December 2016 were; Kenya United Arab Emirates Rwanda o Unmanufactured (UAE) o Portland cement tobacco o Gold o Animal/vegetable fats o Beet sugar o Fish fillets and oil o Tea o Ceareal residues o Soap o Dried leguminous o Milk and cream o Maize corn vegetables o Dried leguminous o Iron/steel bars and rods o Milk and cream vegetables 35 P a g e