Economic policy experts have advised government to abandon its policy of providing tax holidays and incentives to investors.
Presenting a paper titled ‘Tax Policy and Investment in Uganda’ during the third Economic Growth Forum in Kampala last Thursday, Prof Nada O Eissa from George Town University in Washington DC, USA, said the policy is costly to the tax payers.
“Tax incentives cost [Ugandan] taxpayers Shs900 billion to Shs1.3 trillion or 1-2 per cent GDP annually,” Prof Nada said.
“Evidence from around the world shows that investors can carry out investments with or without incentives,” she added.
Her co-presenter, Dr Matthieu Teachout from the International Growth Centre (ICG), said instead of providing tax holidays, the government should work on improving the business environment.
The Prime Minister, Dr Ruhakana Rugunda, said since the beginning of the first National Development Plan (NDP1), the government has undertaken many infrastructure projects such as roads and power dams with the aim of easing business and improving productivity.
“With one of the fastest-growing populations in the world [3.3 per cent], Uganda needs to grow much faster than the current rates if the Vision 2040 aspiration of transforming from a peasant to a modern and a prosperous country in 30 years is to be achieved,” he said.
Dr Rugunda said the global economic uncertainty and climate change pose a major risk to Uganda’s growth prospects in the coming years.
“We see emerging challenges related to the global economy, particularly risks stemming from the uncertainty over Brexit as well as trade disputes between some of the world’s biggest economies. There are several channels through which such tensions at the global level could affect Uganda, including through lower exports, remittances and tourism receipts,” he said.
State minister for Finance in-charge of General Duties Gabriel Ajedra said implementation of recommendations that arose out of the first two economic forums have impacted positively on the economy, with growth averaging 6.1 per cent.
He said good performance was recorded across the three major sectors of agriculture, services and industry.
“Despite the success registered so far, we still remain faced with various impediments to growth. Also, cogniscant of the fact that the global economy is fast changing, we shall continue to hold such engagements in future and solicit for your ideas to help overcome emerging growth challenges and sustain the current economic growth momentum,” he said.
Dr Albert Musisi, a commissioner in the ministry of Finance, said Uganda’s economic growth averaged 4.4 per cent between Financial Year 2011/12 and Financial Year 2016/17. He said “the economy has since recovered, registering a growth of above 6 per cent in the two financial years”.
However, Dr Musisi said key barriers to achieving faster economic growth still exist. “Contribution of productivity growth to overall economic growth is still low compared to the mid-2000s. Although a lot of effort has been directed at increasing investments, Uganda’s investment to GDP ratio is relatively low compared to fast-growing developing countries,” he said.