Uganda loses a lot of money in tax exemptions
Failure to establish mechanisms on how tax exemptions and incentives are awarded exposes the system to abuse, the Auditor General, John Muwanga has revealed.
Muwanga’s warning is contained in the 2020 Auditor General’s report to Parliament where he observed that there are no clear policy guidelines for the issuance, management and monitoring of the different tax benefits and incentives issued by the Government to different individuals.
“The absence of a clear mechanism and framework exposes the scheme to mismanagement and abuse. For example there were inconsistencies in the grant of tax benefits to the various beneficiaries as some were in conflict with earlier policy decisions that were made by the Government,” the Auditor General noted.
The Auditor General cited a scenario that saw Government grant a waiver of import duty for steel goods while offering 10 year tax holiday to the steel sector with the aim of promoting growth of the sector as well as boosting employment.
“I advised Government to develop a comprehensive framework to give the identification of beneficiaries, the nature to be granted the duration of the grant and monitoring and evaluation mechanisms,” said Muwanga.
Civil Society activists- Southern and Eastern Africa Trade, Information and Negotiations Institute (SEATINI)–Uganda welcomed the observation in the Auditor General’s report saying it resonates with what CSOs under the Tax Justice Alliance have been highlighting in our advocacy on; the need to widen the tax base in a fair, equitable and accountable way.
Regina Navuga, Programme Officer, Financing for Development Programme said that instead of deepening the tax burden, taxing the same people over time, government needs to step up its efforts to broaden the tax base which in the long run will increase the revenue hence the tax to GDP ratio.
She added that although domestic revenue is the most reliable source of funding for sustainable for sustainable development, there are a number of challenges including tax evasion and avoidance by individuals and companies which needs to be addressed.”
“The absence of a guiding framework to award tax incentives in Uganda has partly contributed to the scenarios we are seeing now. It is no wonder, that some of them are contradicting the earlier position as stated in the AG’s report. This should not be happening,” Navuga said.
“Ideally, government should have a depository of some of the tax proposals to not only track the laws/regulations put in place earlier but understand the government position in general and the need for policy coherence,” she added.
She also argued that although Government is developing the tax expenditure governance framework to address this issue; there is need to fast track the policy and ensure that it is followed to the latter.
The Auditor General’s report comes at the time when Parliament in May 2019 voted in support of a proposal from Ministry of Finance to write off taxes to a tune of Shs500Bn from private companies.
This proposal was first brought before Parliament in 2016 when the Ministry of Finance tabled a supplementary request, seeking for Shs47.705Bn to offset tax arrears for some companies.
Among the companies that benefited from the tax bonanza include; Roko Construction Limited Shs5.849Bn, Cementer Limited Shs4.618Bn, Dott Services Limited Shs8.321Bn, Steel and Tubes Industries Ltd income tax following tax holiday amounting to Shs20.486Bn, Cipla Quality Chemical Industries Limited for the manufacture of antiretroviral therapy drugs as income tax holiday amounting to Shs57.515Bn.
The others were; Guangzhou Dongsong Energy Group for the Sukulu phosphates project in Stamp duty amounting to Shs8.460Bn and Oil Palm Uganda Limited both income tax and VAT tax holiday Shs175.802Bn, Bugisu Cooperative Union Shs3Bn in Aya Investment Uganda Shs3.941Bn among others.
While reacting to the Auditor General’s findings, Navuga further said, “We should not be giving blanket tax incentives, or incentives for more than 5 five years! This will give Uganda a chance to review and assess whether the objectives have been met. If not convincing, reinstate the taxes!”
She also pointed out that the Auditor General’s report highlights the increased indebtedness arguing that if Government cannot raise adequate funds to finance socio-economic development, then the quick way out will be to borrow both internally and externally.
