Did you see anything substantially new in this year’s national budget?
In terms of the new tax policies, I do not think there has been anything substantial, there are quite a few issues here and there but the impact of the additional tax provisions will be just about Shs50 billion and that is just a tip of the iceberg.
And when you bring a tax like withholding tax, there isn’t really any serious impact from that one. It is more of an administration issue of collecting tax.

There hasn’t been any major excise duty introduction apart from increments in non-malt beer from 20-30 percent. The businessman will definitely pass it on to the consumer. Higher taxes on used items like motor vehicles and huge appliances will definitely impact on the final prices.

We saw a new tax on landlines and pay phones, non-malt beer and matchboxes. Does that sound like a pro-poor budget?
Last year, it was so publicised as a pro-poor budget. I didn’t agree at all with that, may be on paper. We need to pay more attention on the expenditure side because that is where the poor man benefits through directing expenditure to programmes that benefit the poor man.

But also on the other hand, we have not had serious increases in the basic goods and services like food and petroleum products because that can affect every body in the economy. They have not touched the fuel; petrol, diesel and kerosene. They have been easy targets in the past whenever they want to get additional revenue.

We need to be more conscious in trying to add more taxes in areas, which directly affect the poor. But when we talk about the areas of beer; it is fine, it could be a poor man’s product but it is a luxury.

The Shs500 on a bag of cement is likely to affect the construction industry
I agree with Dr. Ezra Suruma in three areas. One, on that one because for the last two or three years in a row, the construction sector has been the fastest growing sector. So it makes reasonable sense to get reasonable revenue from that sector than going to a sector, which is not growing.

The other area is the extension of six percent withholding tax to major manufacturers. It is a form of advanced tax. In many cases, if you are a compliant taxpayer, you are exempted from paying withholding tax even if you are not exempted, you are entitled to a credit and can claim a refund so that is not additional tax. But it improves the administration of the income tax.

ENERGY IS PRIORITY: Mr Ssempijja. Photo by Wandera w’Ouma

The third area was on the capital markets. They are trying to encourage small savings via the capital markets, which is good. We are looking at small savings to buy shares in the stock exchange.

Without having massive investments, you can now buy shares, may be Shs1,000 per share and it encourages small savers to get into the act of saving and investing and also mobilising those small savings.

Dr. Suruma raised fees on work permits from Shs135,000 to $1,000 what do you envisage was in the back of his mind?
There has been a general concern on the lack of control on the entry into this country by foreigners. We would definitely want to encourage investors to come in but I think we have opened our doors too wide.

In the case of East Africans, especially if we are reaching the level of an economic and political federation we shall encourage free movement but still within that federation, we want somebody who is coming from outside to be clearly controlled. Outside the federation, we must have clear borders and checks.

The question of energy was central in this budget but do you think it was adequately addressed?
I think it is still going to be some good years of tightening the belts because of the energy crisis. It’s not a quick fix. Actually in this budget, they put in quite some substantial amount to cater for thermal, but it is like treating a hick-up but its not sustainable. Thermal is very expensive.
The options are not wide but in the medium term, I don’t expect to see any miracles, we still have to go through some hard times.

Industry and agriculture did so poorly last year and yet there was still less funding for these two in the new budget. What should we expect?
Its going to be even tougher for our industries because as we go into the EA federation, the tariff elimination phase is coming in, last year we were at 10 [percent], this year we are 8 [percent] we will keep going till we are at zero and you know the cost here is too high.

Someone can even afford to produce in Dar or Nairobi even if he pays the 10 percent excise duty but because of the economies of scale there, these other costs are very low he can be able to absorb and still be able to out compete here. It’s really a big challenge.

Despite a rosy figure on underlying inflation, should we continue to expect single figures?
When we look at headline inflation, it is double digit. Even as we speak now, you feel it. You don’t have to ask for figures they will give you good figures.
I used to buy a bunch of matooke at Shs2,000 to shs3,000, now I need Shs6,000. Sugar is at Shs2,000, petrol the usual culprit is already up yet these are the basics in life.
I don’t expect inflation to be below two-digit in the headline.

If this economy is to be driven on the back of private sector investment, why didn’t Suruma address the issue of bridging interest rates gap between Treasury bill rates and commercial lending?
That area of interest rates may also be partly attributable to the lack of competition in the financial sector.
Treasury bills rates have actually come down and the TB’s interest rate should be the guiding interest rate in the economy. They have come down. I think they are at 12 percent for 364 days TBs but commercial rates are at 24-25 percent.

The concern from BoU and ministry of Finance officials is that these banks are too few and the competition is not enough. They are like in a cartel. They agree lets operate at this range and take us for a ride. They are trying to look for alternatives like going to the stock exchange. If a company has raised its capital through the stock exchange, the dividend tax will be at a lower rate.

Bank of Uganda’s approach [has been] let the market forces determine [interest rates]. It only comes in with temporal measures if there are serious hick ups, which I think is a good policy. Market mechanisms should channel resources where they are best used and they will give you the best returns automatically.

If you were Dr. Suruma, what is the one priority you would spend on first?
The priority is the energy sector because we are sitting on a time bomb, we have reached a time where investors are asking questions should we relocate to Tanzania or Kenya.