Taxes: Who is exempted, why?

It is already clear that the coming Budget will be tax-heavy. But there are a number of companies that will receive tax breaks (exemptions) as has been the case for years, and debate is already raging on the matter.
One of the most awaited documents on the Parliament floor is the communication on which companies will be exempted from paying taxes in the coming financial year.

Sunday Monitor understands that this issue has touched off heated conversations in Cabinet, and a sub-committee chaired by Prime Minister Ruhakana Rugunda is thrashing out the details before the minister of Finance tables the list in Parliament.

Sources conversant with the discussions, however, say most, if not all the companies that have featured on the list of exemptions in the recent past will remain, with some new ones likely to cash in on the bonanza.
The government has over time either excluded, deducted or exempted tax liability of particular entities and businesses as an enticement to engage in specific activities especially investment in large scale production.

Beneficiaries
Some of the companies that have benefited in the recent years include Bidco Oil Refineries Ltd, Aya Investments Ltd, Steel and Tube, Cipla Quality Chemicals, Uganda Electricity Generation Company Ltd, and Uganda Electricity Transmission Company Ltd.

Others are Bujagali Power project, Roofing Rolling Mills, Vinci Coffee Company Ltd, Liao Shen Industrial Park, ASB Group of Companies, National Cement Uganda Limited, Southern Range Nyanza, Lydia Home Textile, Great Value Investment Ltd, Lily Benefit, Xiang Long Intern (U) Ltd, Christex Garment Industry, Phoenix Logistics, Kingdom Kampala Limited, among others.

Bill
Parliament is already engaged in a debate over a bill, which seeks to revise, and replace the Investment Code Act and to make it conform to the Constitution. The differences mainly stem from defining the incentives to be given to investors and the penalty for those investors who abuse certain guidelines set by the government.

There are also differences of opinion over a proposal to consolidate the exemptions in the Excise Duty (Amendment) Bill, VAT (Amendment) Bill and the Stamp Duty (Amendment) Bill, the Income Tax (Amendment) Bill under the investment code.
Opinion is divided, with one group suggesting that instead of providing tax incentives, the government should put in place a conducive environment and other amenities such as sufficient energy and adequate infrastructure that would allow investors to make money on their own.

Without the incentives, the other group argues, investors would turn to neighbouring countries such as Rwanda or Kenya where they would get the same benefits if not offered in Uganda.

Losses
In the absence of official figures, different experts on average say Uganda loses more than Shs1 trillion in tax forgone in form of tax incentives, which is more than 1 per cent of the country’s Gross Domestic Product (GDP).
The figure is closer to the preliminary findings from an analysis by the Tax Justice Alliance coordinated by SEATINI Uganda, which indicated that the country was losing about Shs900b per year in tax forgone in the form of tax incentives.

Assessments by the International Monetary Fund (IMF) and the World Bank show that countries, which are successful at attracting investments do not necessarily offer tax incentives, but rather invest in factors such as good quality infrastructure, low administrative costs of setting up businesses and political stability. This is one argument those opposed to tax incentives advance.

Queries
Questions also shroud the transparency of the process and procedure for managing and granting tax exemptions and the reporting structure on tax revenue foregone. The argument is that the incentives do not necessarily go to the sectors or companies which are most productive or employ most Ugandans or produce the most essential goods.

There are arguments that the incentives are sometimes granted arbitrarily, perhaps after the some officials get paid to front certain companies and not others.

This disadvantages perhaps more worthy companies that create more value and employ more Ugandans but have to compete with those that receive incentives from taxpayers’ money.
A related argument is on the number of Ugandans a company must employ to benefit from a tax incentive.
Also, part of the ongoing discussion is whether a clear method of determining who benefits from tax incentives can be charted and rooted in law.

"We should set up black and white criterion on who qualifies for whatever exemptions and land bonanza. The current one is prone to mischief and undermines Uganda’s economic development,” Julius Kapwepwe Mishambi, Director of Programmes at Uganda Debt Network

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