CSO’s: Uganda Should Stop Offering Tax Incentives

CSO's: Uganda Should Stop Offering Tax Incentives tax incentives

CSO’s have requested the Ugandan government to perform a cost-benefit analysis to determine whether tax incentives are actually cost efficient. These incentives are meant to attract investors, but they are also prone to abuse.

This year, the Ugandan government spent Shs 77 billion (approximately $21.5 million) to pay taxes for Bidco Oil Refineries Ltd, Aya Investments Ltd, Steel and Tube, Cipla Quality Chemicals, Uganda Electricity Generation Company Ltd and Uganda Electricity Transmission Company Ltd. This year, at least 23 companies will benefit from tax incentives and there is concern from parliamentarians over the manner in which these are given out.

Nelly Busingye, a program officer at Southern and Eastern Africa Trade, Information and Negotiations Institute (SEATINI) says that research suggests that developing countries don’t need tax incentives to attract foreign investors. Most corporations think that other parameters such as cost of labour and energy, presence of adequate infrastructure and the country’s overall investment climate are much more important.

Assessments by the International Monetary Fund (IMF) and the World Bank show that countries which are successful at attracting investments don’t offer tax incentives, but rather invest in factors such as good quality infrastructure, low administrative costs of setting up businesses and political stability.

Preliminary findings from an analysis being conducted by the Tax Justice Alliance coordinated by SEATINI Uganda shows that about Shs 900bn ($250 million) in 2015/16 was tax forgone in the form of tax incentives.

According to Christine Byiringiro, a program officer at Uganda Debt Network, Uganda’s debt of Shs 38 trillion ($10.5 billion) could easily be paid if the government stopped offering tax holidays and would instead concentrate on priority sectors like education, energy, health and infrastructures.

What definitely doesn’t help the public trust concerning these tax breaks is the fact that in 2016 the Members of Parliament exempted themselves from paying taxes on their allowances. According to Julius Mukunda, executive director at Civil Society Budget Advocacy Group (CSBAG) this led to a loss of more than Shs 53 billion ($14,7 million) annually.