The World Bank has told government to stop giving unnecessary tax exemption because they are eroding a huge tax base that would otherwise have huge returns.
A study conducted by George Town University, US presented during Economic Growth Forum in Kampala last year indicated tax incentives cost Ugandan taxpayers between Shs900b and Shs1.3 trillion or 2 per cent of GDP annually.
This, the World Bank says, had denied Uganda an opportunity to increase the country’s tax ratio to the GDP, which remains low compared to other countries in East Africa and sub Saharan Africa.
Speaking during media briefing in Kampala on Wednesday, Mr Richard Walker, the World Bank senior country economist, said Uganda’s fiscal policy is constrained by low revenues and slow execution of capital spending.
“At 12.6 per cent of GDP, it is far below government’s medium-term revenue target and compared to Rwanda and Kenya –among others this is a constraint on government’s ability to provide services,” he said, noting ensuring robust and diverse revenue base is a critical.
Mr Walker said this will help contain the rise in public debt, ensure stronger social compact in the use of revenues and provision of services.
According to the World Bank, estimates indicate that revenue foregone due to exemptions from all tax sources was at between 4.5 and 5 per cent of GDP in 2016/17) yet there is very little evidence that such exemptions encourage greater investment.
However, on the other hand, Mr Walker said government must be commended for trying to broaden the tax base through introduction of a number domestic revenue mobilization strategies.
He also noted that Uganda’s public debt remains sustainable but vulnerability, which might lead to debt distress, continues to grow.
Mr Walker also warned that the risk to debt sustainability is real, given the slowdown in growth, delays in oil production, and continued non-concessional borrowing.
Growing public debt
Uganda’s public debt has grown from $7.6b in 2014 to more than $13b in 2019 and is expected to grow further to $14b this year.