As the health of Uganda’s economy remains a subject of public debate, nothing is more telling of the hard times than Uganda Revenue Authority apparently in distress slashing taxes on cars previosuly its collection cash cow.
With effect from October 1, the tax body reduced the used car tax rates after importation dropped by 70% and revenue collected by URA dropped from sh21.4 billion in July 2014 to sh14.2b in July 2015.
Despite the slight reduction on taxes of some cars like Premio, Noah, Raum and minbus, URA however increased the dollar rate to sh3,560 yet the open rate is sh3,400, making the benefit from the tax reduction minimal benefit to car dealers. The used car business has been choking since July 1 last year.
For instance, a Toyota Premio ZRT265 of with an 1800cc of 2003 model will be taxed at $3,372.23 down from $5,343.67 while a Nissan X-Trail 2wd Station Wagon T30 of 2004 make with a 2000cc has seen its taxation fall by $747.31 from the previous $4,483.88.
Besides the market forces, car prices had been forced up and buyers scared away by the government’s increase on the environment levy for used cars of between five to ten years from 20% to 35% of the cost, insurance and freight (CIF) value while the levy for those above 10 years had insanely jumped from 35% to 50% of the CIF value.
There are those who think URA is the cause of its own troubles. But the tax revision has helped stimulate the used car business which had slowed down but market analysts insist the lowest Ugandan car buy will continue not to comprehend with the actual cost unless URA sets the taxes in shillings and reverse them once a year, not monthly as it is currently.
The real problem, as has been obvious for years, is the almost exclusive use of used car taxes to fund government’s political coffers.
Last month, Bank of Uganda revised the Central Bank Rate from 14 per cent to 13 per cent to ease financial constraints faced by investors because of high interest rates demanded by commercial banks that mortgage most of the first-time car buyers.
