A proposal to give private companies, among them ‘Aya Hotel’ businessman Muhammad Hamid, tax exemptions has been opposed by Members of Parliament on the Budget Committee.
The legislators argued on Wednesday that the Shs23 billion in tax holidays to more than 22 companies is illegal and burdensome to taxpayers.
The MPs also said giving “tax holidays” and “subsidies” to the mostly foreign-owned companies is disadvantageous to indigenous investors.
“Is it (the subsidies) backed by any law? I am being suspicious, you can talk of many Ugandan companies that have collapsed under the eye of government; we are supporting private companies using public funds,” charged Ms Cecilia Ogwa (FDC, Dokolo).
Late last year, government tossed around with another plan to bail out loan-stressed private companies, a proposal which also attracted a lot of opposition from both Members of Parliament and the public.
Ms Ogwal cited section 77 of the Public Finance Management Act 2015, which she said government has contravened in proposing continued subsidisation of the selected companies.
Junior finance minister David Bahati defended the proposal. He said the Finance ministry does not unilaterally make tax payments for companies except with the approval of Parliament.
“I cannot exempt, so if we (government) want to give a tax exemption, we budget for it and it is paid directly by government to URA through an appropriation,” Mr Bahati said.
The committee chairperson Amos Lugoloobi (NRM, Ntenjeru South) said the tax subsidies, mostly extended to foreign-owned companies, are unfair to local companies.
“What you grant to Sameer, you should also grant to Jesa and what you grant to Steel and Tubes, you should also grant to Ssembule [Steel Mills],” he said.
After a sustained acrimonious debate on the legalities of the tax subsidies, Mr Bahati said while exemptions are not within the ministry’s legal mandate, the various tax laws and the Appropriations Act is what provides the legal basis for his ministry’s action.
“We have tried to explain that the Income Tax, the Value Added Tax, and the Appropriation Act is what we use to make the payments; they are approved by Parliament by way of appropriation,” he said.
The ministry officials explained that government asks selected companies to provide the sum of their tax obligations in a given financial year and then it appropriates an equivalent amount in the national budget.
“This financial year it is vote number 8 in the ministry of Finance budget, which if Parliament approves, we pay directly to URA,” said Mr Bahati.
Mr Bahati, however, admitted that “Parliament through enactment of various tax laws abolished discretionary powers of the minister or any other person to grant tax exemptions,” he said.
“Tax exemptions and incentives are embedded within the respective tax laws.”
West Budama North MP Richard Othieno said embedding exemptions inside appropriations is meant to “defeat the law.” “Whereas Parliament came up with various laws to stop the minister from making the exemptions, they have gone through the Appropriations [Act]to defeat the law,” he said.
Topping the list of companies lined up for tax incentive in the next financial year is Roofing Rolling Mills Limited, whose Corporation Tax government committed to pay from July 1, 2009 to June 30, 2019.
Steel and Tube Industries Limited are also to have their Corporation Tax paid by the taxpayers from January 1, 2011 to 2021. Mr Bahati said this will “support the development of the steel industry.”
Businessman Muhammad Hamid of the Aya Hotel project gets an incentive of Value Added Tax and Import Duty renewable every financial year which Mr Bahati said is intended to “support the development of the hotel industry.”