Uganda is set to lose US$287M (about ShsShs1.062Trn) in taxes because of the Double Tax Agreements signed between Uganda and Netherlands that will see Total walk away without paying some taxes to Uganda Revenue Authority (URA), a new report has revealed.
Titled “The Money Pipeline”, the Oxfam released yesterday estimates that Uganda could lose up to US$287 million in taxes for this project due to the detrimental conditions of the Double Tax Agreement (DTA) between Uganda and the Netherlands.
This would actually represent 5.7% of all potential government revenues from the oil exploitation for 1 Exploration Area only out of 4 in total, and about 2% of the annual country’s health budget.
“This amount only represents a fraction of all potential tax losses: this is only the tip of the iceberg and is the result of direct choices made by many companies investing in Uganda. Companies like TOTAL have the capacity to design their corporate structures in a way that optimizes their tax bill this has dramatic consequences for the finances of the countries where they operate”, says Caroline Avan, Oxfam France Advocacy Officer.
Oxfam investigated for several months the mega project led by the French energy giant TOTAL which will allow for the exploitation of 1.4 billion barrels of oil located on the shores of Lake Albert.
One of the perks of the agreement between the Netherlands and Uganda is indeed that dividends on profits made in Uganda when repatriated to a Dutch company owning more than half of the shares are simply not be taxed at all, against 15% as per the national legislation.
Many including the IMF view this DTA as presenting significant risks for Uganda and a clear potential for treaty shopping. While the agreement is currently being renegotiated, there is no guarantee that this rate will be increased.
“The renegotiation of the DTA is a clear opportunity for the Netherlands to reduce its role in tax avoidance techniques that deprive Uganda of revenues. However, further legal reforms are required to reduce the negative fiscal impact of the Netherlands across the European Union and developing nations. The upcoming ECOFIN meeting with discussions on the EU Blacklist of tax havens is a good opportunity for European governments to start holding themselves to the same standards by which they judge other countries” says Henrique Alencar, Tax policy Advisor at Oxfam Novib.
Tax avoidance deprives states of essential resources to finance essential public services to fight poverty and inequality. Uganda is in dire need of these resources, in a context where its domestic finances have already dramatically suffered from the COVID-19.
There is no cure to the budget woes of Uganda without proper domestic revenue mobilization and fair tax collection. And in the case of this project, there is no room for error as the necessity of the energy transition are driving down oil prices, which would already diminish the government’s proceeds.
“Currently one in five Ugandans live in extreme poverty with limited access to essential services such as education, health and clean water. This situation has been worsened by the COVID-19 pandemic, the measures to contain it and the ever-escalating indebtedness which stands at $13.33 billion. This situation calls for urgency to address the loopholes in the Double Taxation Agreements signed by the government so as to mobilize adequate domestic revenue,” says Ms. Jane Nalunga, Executive Director at SEATINI Uganda, Oxfam’s partner in Uganda “If the government wants to derive meaningful revenues from this project, it cannot let this detrimental DTA stand in the way”, says Joseph Olwenyi, Financing for Development Coordinator at Oxfam Uganda.
