With $108m budget hole, Juba aligns tax regime with EAC to raise income

Wednesday September 6 2017

A cooking oil trader at a market in Juba, South

A cooking oil trader at a market in Juba, South Sudan. FILE PHOTO | AFP 

By ALLAN OLINGO
More by this Author

Traders in South Sudan are expected to bear an increased cost of doing business, after the country’s parliament passed a $300 million budget that will see an increase in taxation.

South Sudan’s parliament approved the 2017/2018 budget, which has a deficit of $108 million, even as the country struggles to raise revenues in an economy suffering from uncertainty due to civil war.

The government is seeking to increase spending by more than 30 per cent from last year’s $246 million, with salaries taking up 62 per cent.

Finance Minister Stephen Dhau proposes to raise more than $7.87 million by aligning the country’s fiscal and taxation policies with those of its East African Community partner states.

Juba will now start implementing the harmonised system classification of goods, which will align its schedule with that of the EAC, allowing it to bag an extra $800,640.

“We plan to increase sales tax from 15 per cent to 20 per cent, which brings our rate closer to VAT rates in neighbouring countries. We also plan raise excise on telecommunications services from 10 per cent to 30 per cent to bring the total tax burden on telecommunication services in line with other countries in the region,” said Mr Dhau.

Other new taxation measures in line with EAC countries are the imposition of an eight per cent withholding tax on government contracts and a 10 per cent withholding tax on technical fees paid to contractors, which will be in line with the EAC Tax Treaty.

“We will also be introducing departure tax of $20 per person on international air travel, like those that exist in neighbouring countries, which would net us an estimated $2.4 million,” Mr Dhau said, adding that the country will now have a new Customs tariff schedule that will adopt duty tariffs at five per cent, 10 per cent and 20 per cent.

Donors

The second largest expenditure categories will be security at 27 per cent, followed by administration. President Salva Kiir’s office will be the third largest spender at 19 per cent.

The country still depends on oil revenues to fund most of its budget. It says donor support and loans would come in handy to bridge the deficit.

In this financial year, the government expects $16.34 million in grants from donors supporting the budget.

“The funding of this budget would be difficult, so we plan to seek support from the donor community in terms of grants or external borrowing. We are also looking for loans,” Mr Dhau said.

Early this year, Juba entered into talks with China over a possible funding of $1.9 billion towards infrastructure to spur economic growth in the war-ravaged country.

The country’ main import artery from Uganda has in the recent weeks been cut off by heavy rains and flooding, making it almost impassable. This has denied Juba the taxes on traders and goods, while also feeding on the country’s hyperinflation that currently stands at 250 per cent.

In 2016, the country’s revenues stood at $381 million, which was 26 per cent below budget. The country’s actual expenditure was $483 million, leaving a huge budget deficit that saw most of development projects suspended.

Oil revenues

In 2016/17 fiscal year, the net oil revenues are forecast at $72.5 million, which is $49.6 million higher than what was projected for 2015/16, due to the depreciation in the exchange rate. Last year, Juba deferred payments to Sudan which led to an outstanding stock of arrears amounting to $291 million by the end of June 2016.

This means that Juba now owes Khartoum $301.2 million this fiscal year, of which $171.8 million will be provided through in-kind shipments and $12.1 million in direct payments.

“However, oil revenues in this fiscal year will not be sufficient to enable repayment of these arrears.  Instead, we will prevent the accumulation of new arrears, and negotiate with Sudan to reschedule the payment of arrears. We have proposed to provide in-kind shipments to Sudan, which will be accounted for against our payment obligations, and we will make up any difference between the in-kind shipments and our total obligations through payments in cash,” Mr Dhau said.

“As it is we only have $191 million available, leaving us with a budget deficit of $108 million. Our net oil revenue available to fund this budget is estimated at $166 million, which is just 20 per cent of the country’s gross revenue,” Mr Dhau said.

Juba is also intending to raise $72.05 million in non-oil revenue, a 50 per cent increase from the previous year, an ambitious improvements in collections based on immediate implementation of the measures incorporated in the Taxation Amendment Bill 2016 and Financial Bill 2016/17.

“This financial year budget is different from the last because it contains reform measures that were advised by the IMF (International Monetary Fund) in their consultation when they came here last May. There are reform measures will be taken that will lead to the increase of non-oil revenue,” he said. 

Juba has also taken loans from Chinese companies, offering to pay them back with future oil proceeds.  Earlier this month, Foreign Minister Deng Alor said the country planned to ask China for a $1.9 billion loan - a sum equal to more than a fifth of its national output - to be used for infrastructure projects such as roads and bridges.

The country’s net borrowing currently stands at $282.7 million, which included $14.09 of borrowing from domestic banks and $119.3 million of direct borrowing from the Bank of South Sudan. The country also received an oil advance payment of $91.3 million and external loans of $42.5 million.