More taxes the only way out of debt, says Muhakanizi

Secretary to the Treasury Keith Muhakanazi

The Permanent Secretary and Secretary to the Treasury (PS/ST) in the Ministry of Finance, Planning and Economic Development (MoFPED) Keith Muhakanizi has argued that Uganda’s worrying debt can only be managed by increasing revenue mobilization rather than cutting expenditure as many economists have been arguing.

“Unlike those years when we could cut on the public expenditure, it is very impossible today because for example we have commissioned public infrastructural projects which we can’t just abandon” said Muhakanizi.

Muhakanizi who was speaking at the launch of the 2019 International Monetary Fund Regional Economic Outlook Report at Sheraton hotel Kampala on Monday.
He said there is no way public expenditure can be reduced as it may be thought by some analysts and therefore the only solution for managing the increasing public debt is increasing the domestic revenue collection.

He explained that by advocating increasing domestic revenue, he does not mean increasing taxes, but rather improving efficiency in revenue collection.

“When I say an increase in domestic revenue collection, I do not mean that we should increase the taxes, we can increase the revenue through collecting taxes efficiently from all entities that are supposed to pay taxes.”

The report indicated that the formulation of unrealistic budgets, lack of commitment controls, poor cash management, delays in processing payments, and inadequate sanctions for noncompliance are some of the causes of arrears.

The June 2018 Auditor General’s Report revealed that Uganda’s Public debt had rose to UGX41.51 trillion showing a 22 percent increment from the UGX33.99 trillion in June 30, 2017.

Julius Mukunda, the Executive Director of the Civil Society Budget Advocacy Group (CSBAG) partly agrees with the PSST noting vthat it is possible to manage the debt through increasing in domestic revenue collection.

“We can increase the domestic revenue collection by being more efficient in the collection. We have sectors which do not pay tax for example fisheries it is a big business but doesn’t pay taxes, We very well know that less than 10 percent of rental income is taxed” he said.

He however disagrees on the issue of cutting public expenditure which says that there are a number of things that can be done to reduce on public expenditure. “For example we have a big parliament, so many institutions whose functions can be performed by a ministry”

Economist Ramathan Ggoobi 

Ramathan Ggoobi an Economist and a Policy Analyst, totally disagree with the PSST’s suggestion of increasing the domestic revenue. He says that even if all the domestic revenue is collected, it cannot solve the debt burden unless the public expenditure is cut.

“The PSST is being escapist. To say that he does not have any window of getting a budget neutral, fiscal policies, that is cutting expenditure is like giving up on the reality and wants to board the route which is not viable,” he said.

“There could be some weakness in tax administration but I don’t think they are beyond three percent to increase the tax to GDP ratio. The real money that is being wasted is the inefficiency (misuse) which is going on in this government. They have a lot of money which they are not putting to proper use. They give accounting officers money but fail to do the projects,” he added.

He adds that it is difficult to collect taxes on most of the tax defaulter businesses because most of them are owned by politicians.

“How will he get that policy passed? The same politics he fears to tackle expenditure is the same that is going to stop him from taxing certain businesses. When they talk of increasing tax revenue, they are looking for a way on how to get on soft spots like us and they bring other forms of taxes to tax the same people,” argues Ggoobi.

According to the IMF Report, out of the five shillings that is collected, one shilling is used to pay back debt which is constraining the economy.

In the 2019/20 budget UGX 3.145 trillion, (9.6 per cent of the total budget) was allocated towards interest payments on debt.

Clara Mira, the IMF Resident Representative said that when the big infrastructural projects are completed, they could help in debt repayment.

“If projects are targeted at areas that promote economic growth I think Uganda can manage their public debt because they are still a comfortably low risk. The revenue also has the potential of helping in paying back,” she argued.

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