Govt scraps tax breaks to spur take off of economy
What you need to know:
This will usher the Ugandans from the informal sector to the tax system.
The government has stopped giving tax incentives to individuals driven by the need to reduce the country’s huge budget deficit.
Finally, the Minister of Finance, Ms Maria Kiwanuka, has come out clearly to say there are no more tax incentives in Uganda.
“We are no longer giving tax incentives to individuals. We shall only be giving tax incentives to specific sectors where we believe it is applicable, for instance, in medical equipment,” she said.
Despite Uganda’s narrow a tax base, the government has been generously administering tax exemptions to individuals/companies and this has had a negative impact on domestic revenue collections since many people or taxable items have been exempted from paying tax.
This has contributed to the limited tax ratio to the economy, fluctuating 12 per cent and 13 per cent; a level which it which has been stagnant at for more than a decade.
The tax incentives have been opposed by Uganda’s development partners, especially the International Monetary Fund, which has often called for removal of the tax exemptions for the country realise increased domestic revenue collections.
For the first time in Uganda’s history, government is financing up to 80 per cent of the current budget using domestic resources to be generated from taxes and other sources like issuing of Treasury Bonds and Treasury Bills.
Alternative revenue sources
Ms Kiwanuka says government is exploring ways of ensuring that increased domestic revenue accruing from domestic tax is not exempted.
The new way of increasing Uganda’s tax base will usher the vast majority of Ugandans from the informal sector to the tax system.
Ms Kiwanuka’s announcement came shortly after the Chines Ambassador to Uganda, Mr Zhao Yali requested the government to provide incentives to foreign investors as a way of attracting more direct foreign investment into Uganda.
In another move aimed at reducing public expenditure in programmes that are not beneficial, Ms Kiwanuka revealed that expenditure on workshops and advertising has now been reduced.
“The ministry of finance first reduced expenditure on workshops and advertising by 20 per cent, then when I join the ministry it was reduced by 40 and now has again been reduced by 20 per cent making the total reduction in workshops/advertising by 80 per cent,” she said.
