CHANGE OF PLAN: Govt Withdraws Annual License Measure on Private Vehicles, Introduces UGX100 per Litre of fuel

After facing a backlash from Ugandans over plans to introduce an annual license on privately owned vehicles, government has withdrawn the proposal and replaced it with a UGX100 levy on each litre of petrol and diesel.

Government has proposed an amendment to the Traffic and Road Safety Act by introducing a section that makes it a crime for anyone who owns a vehicle minus paying annual license fees.

Uganda Revenue Authority (URA) was expected to collect about UGX20.5 billion annually but now the amendment to the Traffic and Road Safety Act has been dropped and replaced with an additional amendment to the Excise duty.

The change in method of collecting this tax was presented to the Parliamentary Committee on Finance, Planning and Economic Development by State Minister for Planning, David Bahati this morning.

“In that regard, to compensate for loss of revenue earlier projected from the proposals, we have withdrawn. We propose a modest increase in excise duty by UGX100 per litre of diesel and petrol,” Bahati said.

The Minister told the MPs who have since the tax measures were tabled have been questioning the levy on vehicles without withdrawing the outstanding levy on fuel, that the Government has critical expenditure pressures, but is constrained to generate resources through borrowing.

The Committee Chaired by Rubanda East MP Henry Musasizi had already planned in their report expected to be presented before Parliament on Tuesday to recommend that the government should not impose another direct tax on ownership of motor vehicles because there would be “compliance challenges”.

With the country already facing uncertainty over the fuel price fluctuations, the government insists that pump price will only increase by the UGX100.

“The increase is not expected to cause a significant increase in the pump process. We estimate that an increase of UGX100 per litre in excise duty will increase pump prices by only UGX100 assuming the entire increase in duty is passed on to the consumer and the exchange rate and international fuel prices remain constant” Bahati added.

According to the Minister, Uganda’s current pump price is UGX4,160 per litre of petrol and UGX3,700 per litre of diesel.  On Petrol, Uganda’s pump price for petrol is the third highest in the East African region after Kenya with UGX4,184 and Burundi with UGX4,464.

Tanzania and Rwanda currently have the lowest pump price for petrol at UGX3,312 and UGX3,939 respectively.

Government has also withdrawn the UGX70,000 per kilogram of fish maw being exported out of the country but instead proposed to amend the Fish Act by levying Export duty equivalent to 10 percent on the fish value of the exported maw.

If this tax is approved by Parliament, URA is expected to collect UGX10b from the lucrative business of exporting fish maws to the Asian countries.

Fish maw prices are currently standing between UGX100,000 and UGX300,000 per kilogram depending on the size of the Nile Perch fish from which it is extracted. The price can increase to over UX500000 if the fish is huge in size.

The Minister released data obtained from the URA’s Customs department which indicated Fish Maw exporters earned UGX130.1 billion from 342,593 kgs of fish maw at a rate of UGX380,003 per kilogram between July 2019 and June 2020.

“Therefore, the above new proposed amendment shall provide fairness to dealers of both high and low quality fish maws, as this tax in percentage terms will effectively accommodate the variations in the prices of fish maws,” the Minister added.

Maintained taxes

Despite withdrawing some taxes, the government has maintained its proposal for new taxes which include UGX100 per kilogram of wheat grain from which it expects a total collection of UGX30 billion a year.  However, this tax is expected to lead to a UXG50 increase on the market price of a loaf of bread.

URA is facing a burden of collecting the projected UGX22 trillion in domestic revenue as the government sweats on financing the UGX44.6 trillion budget estimates for the Financial Year 2021/2022.