Tax waivers to investors hurting Uganda; should be scrapped, say CSOs

Civil Society Organisations have said the country loses a lot of money inform of tax exemptions to investors, especially the foreign ones, noting that something ought to be done to change the status quo.

A government tax expenditure released last year indicated that the country lost more than shs5 trillion during the financial year 2019/20 due to tax expenditures incurred on exemptions, reliefs and incentives.

Recently, it was revealed that  as part of the controversial coffee processing agreement with government,  Uganda Vinci Coffee Company Limited, a private company contracted  to market and export Uganda’s coffee was exempted from paying taxes including income tax, pay as you earn, Excise Duty, Stamp Duty, VAT, Import Duty and corporate income tax.

The agreement has since courted controversy from members of the public over the manner the deal was signed.

Addressing journalists on Tuesday, David Kizito, the Program Officer for Transparency International Uganda said on most occasions, the waivers hurt the country because government goes ahead to borrow more money to finance its budget yet the money that would have been used to finance is waived off investors.

“The unhealthy tax waivers hurt the country. Our debt is always growing but most of these exemptions can fund our budgets. A specific study by Ministry of Finance put the figure at shs7.7 trillion. This amount can service the entire budgets for agriculture and education but that is all lost to exemptions,” Kizito said.

The Ugandan government officers a 10-year tax holiday for a foreign investor whose investment capital is worth shs124 billion and above whereas the same waiver is offered to local investors whose investment capital is worth shs17 billion.

Speaking on Tuesday, the CSOs noted that Uganda tends to lose because most of these incentives are offered to foreign investors which repatriate capital and the local investors are neglected.

“In interest of growing our local companies, most of the things to do with waivers should be dropped and if not, then they must be crafted to favour local investors. We should provide. In any case, what drives foreigners to do business here are other forms of enablers of production other than tax and as a country, we have provided more subsidies like the free zones.”

The CSOs also threw their weight behind some of the  tax amendment bills presented before parliament by the Ministry of Finance including the Finance Act (Amendment) Bill 2021, the Stamp Duty Act (Amendment) Bill 2022, the Tax Appeals Tribunal Act (Amendment) Bill, 2021, the Value Added Tax (Amendment) Bill 2021, the Income Tax (Amendment) Bill 2022, the Tax Procedures Code Act (Amendment) Bill 2022, the Excise Duty (Amendment) Bill, and the Stamp Duty (Amendment) Bill 2022.

“We support the implementation of section 21(1)(aj) of the Income Tax Act, which exempts the income of hospital facility developers for at least $5 million for a period of at least six years from the date of commencement. We hope parliament will see the amendments through,” said Regina Navuga, the Program Coordinator for SEATINI Uganda.

According to Henry Bazira from the Water Governance Institute, government should reconsider the withholding tax charged on individuals who sell land that is not commercial as compared to those that sell commercial land.

The CSOs also noted that for the  Income Tax amendment bill 2022 they recommend that under  the rental tax regime , the individual tax rate should be reduced to 10% and the company tax rate  to 12% by increasing deductions to 60%.

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