Parliament’s Committee of Finance is slated to start a probe into the Shs 7 Trillion tax exemptions, despite Members of Parliament and the army contributing to a huge chunk of taxes foregone by Government through income tax exemption.
The pronouncement was made by Keefa Kiwanuka, Chairperson Finance Committee during the plenary sitting following a concern raised by Kiwanuka Kivumbi (Butambala County) over the failure by Government to conduct a review of the tax waivers and its impact on the economy.
This followed a revelation that the Minister of Finance had exempted a certain group of plastic manufacturers and leaving out the rest, with Muwanga arguing that the net effect of tax waivers on the country is a whooping Shs8Trn and the country still grapples with a debt refinancing of equal amount.
“If we did some small homework and revisited our policy on tax exemptions and waivers, we can progressively do away with debt refinancing and by doing so, we will save Shs5Trn annually in interest payment. It will come to a point where what we are doing will be unsustainable. Therefore, Government should take it as a clear mandate to study this and come up with a comprehensive report to this parliament,” said Kivumbi.
Asked by Speaker Among why the Finance Committee hasn’t embarked on this probe, Kiwanuka blamed it on the slow response from the Ministry of Finance to provide information to the Committee for the probe.
Henry Musasizi, State Minister for Finance (General Duties) revealed that all the data required about tax waivers is publicly published and Government has established a Committee to review the tax waivers.
“The Committee which we are working with to review the tax exemptions and the tax expenditures we have made with a view of ascertaining those which are relevant for the current economic circumstances and those which are not, I welcome your ideas, it is an idea in the right direction because we think we should link our tax to GDP,” said Musasizi.
According to the Ministry of Finance Tax Expenditure report 2020/2021, revenue foregone on account of tax expenditures has increased from Shs2.167Trn in FY2016/17 to Shs7.722Trn in FY 2020/21.
In the breakdown, VAT Exemptions expenditures in 2019/2020 were to a tune of Shs1.855Trn and these rose to Shs2.195Trn in 2020/2021, while the Customs Tax Exemptions were to a tune of Shs2.065Trn in 2019/2020 and rose to Shs3.168Trn in 2020/2021.
The report further attributed the Revenue foregone due to income tax exemptions to a tune of Shs386.34Bnin FY 2020/21, with the biggest contributors being employment income tax for armed forces personnel, the income of Bujagali Hydro Power Project and employment income other than basic salary for MPs.
The Army has cost Shs95.13Bn in unpaid employment income tax due to their exemption, while MPs have cost Shs126.64Bn in exemptions on their allowances, while the Income of Bujagali Hydro Power Project is Shs90.74Bn and exemptions to Business and investment income tax for SACCOs was Shs25.45Bn.
However, the Minister warned that the loss made through tax exemptions could be higher because many beneficiaries of income tax and VAT exemptions do not file tax returns, leading to data inadequacies, therefore the estimated revenue foregone could potentially be higher than reported if all beneficiaries filed returns.
