Kampala. Uganda’s revenue resource envelope could be eroded further if government does not stop “unfair” tax exemptions, the Southern and Eastern Africa Trade Information and Negotiations Institute (Seatini), has warned.
The amount of money lost due to tax exemptions in 2017/18 according to Seatini, reached Shs1.4 trillion, the biggest share as a result of international trade tax and Value Added Tax (VAT) related exemptions.
“Some of the tax exemptions are really harmful despite the fact that our target for the tax to Gross Domestic Product ratio is 16 per cent, we have only raised 14 per cent. Where we want to be in the East African region, it is at about 25 per cent and there are a number of challenges but one of the larger issues is tax exemptions,” Ms Regina Navuga, a programme officer at Seatini, said.
She was speaking at the launch of a 2019 report by Seatini and Democratic Governance Facility on the impact of harmful tax incentives and exemptions in Uganda.
The warning comes almost two weeks ahead of the budget reading for the financial year 2018/19.
Tax exemptions are preferential treatments offered to a selected group of taxpayers usually through the form of special zones, tax holidays, tax credits, investment allowances, preferential tax rates or import tariffs.
In Uganda, tax exemptions are within the tax laws whereas others are granted by the Executive.
The report named the most harmful exemptions including VAT worth Shs202.59b, government undertakings worth Shs102.81b in 2017/18, MPs allowances worth Shs33b and interest income of Saccos worth Shs10b.
As part of its report, Seatini asked government to be transparent on how tax exemptions are awarded and what sectors are benefiting.
Mr Nicholas Musoke, the Uganda Revenue Authority supervisor for research and policy analysis, said tax exemptions would not be harmful only that some of the provisions are abused.
“Investors take advantage of loopholes in the exemptions and sometimes we lose a lot of revenue more so when it comes to income tax exemptions granted to some,” he said.
According to Mr Nicholas Musoke, the Uganda Revenue Authority supervisor for research and policy analysis, because some investors fail to file their returns, they are not assessed on how much money they are making.
This, together with weak monitoring, he said, makes it difficult to ascertain whether they are abiding by the terms of the exemption.
He asked government to provide a multi-agency taskforce to track the impact of the tax exemptions.