Bujagali Power Project
Government through the Ministry of Finance, Planning and Economic Development is seeking Parliamentary approval to gift Bujagali Hydroelectricity Dam and Private hospitals income tax holiday for five years, a move that will see Government lose over Shs250bn in revenue.
The proposal is contained in the Income Tax Amendment Bill 2022 that was tabled before Parliament by Henry Musasizi, State Minister for Finance -General Duties as part of the tax measures intended to finance the 2022/2023 national budget.
In order to do this, Government is seeking to amend section 21 of the Income Tax Act by substituting words 2022 with 2027 because Bujagali’s current tax holiday was meant to end this financial year and the extension is meant to reduce tariffs of hydro electricity generated by the Bujagali Hydro Power.
However, it isn’t only Bujagali to benefit from the tax exemption bonanza, but also proprietors of private hospitals will get tax holidays for five years.
“The income of a developer of a hospital facility, whose investment capital is, for over a period of at least ten years from the date of commencement of business, at least US$5 Million approximately Shs17.926Bn [qualifies to get the five-year tax holiday],” read in part the proposal.
The development comes at the time Auditor General, John Muwanga in his December 2021 report to Parliament raised concern on the absence of clear policies to guide tax exemptions and other investor incentives, warning that this exposes the scheme to mismanagement and abuse .
Muwanga revealed that during the audit process, auditors discovered that 20 beneficiaries whose tax exemption periods had expired continued to enjoy the scheme after Government failed to follow up.
The Auditor General thus noted that this has left Government without capacity to assess the impact of tax benefits granted to various beneficiaries.
In the certificate of financial implication submitted to Parliament to accompany the Income Tax Amendment Bill 2022, it indicates that revenue loss expected from the Bill is estimated to be Shs48.8112 billion annually, bringing the loss to over Shs250Bn.
The Ministry of Finance is seeking to extend similar income tax exemption to certain foreign investor manufacturers with an investment capital for over a period of at least ten years or US$5 Million and with capacity to source at least fifty percent of the local force.
It should be recalled that in April 2019, Southern and Eastern Africa Trade Information and Negotiations Institute (SEATINI) Uganda authored a report titled Impact of Harmful Tax Incentives and Exemptions in Uganda warning that the cost of such decisions are high and likely never to be abolished.
The study highlighted that accurate estimation of the revenue lost is a difficult task given the information vacuum on tax exemptions, while some agreements in which some of the exemptions are granted are untraceable.
“We thus estimate revenue lost to tax exemptions for cases where reliable information is available as seen in table 3 below. Over Shs1.420Trn are estimated to have been lost due to tax exemptions in FY 2017/18. This figure is likely to be more if all the necessary information was available to ascertain the exact amount foregone,” read in part the report.
