What you need to know:
Government had promised to provide Oil Refinery Company with 26,500 hectares of land. However, the Auditor General noted a balance of 10,000 hectares have not been provided.
Government’s failure to provide land to Oil Refinery Company has resulted into large tax write offs and losses, according to the Auditor General.
In April 2003, according to the Auditor General’s report for the year ended June 2021, government entered into an agreement with Oil Refinery Company for the development and enhancement of Uganda’s oil palm industry.
Under the agreement, government was required to provide 26,500 hectares of land but has since failed to fulfill contractual obligations thus requiring massive tax write-offs.
“… government has breached the contract by failing to provide the balance of the 10,000 hectares of land as agreed. There is no documentation to show that the Ministry [of Finance] has made any follow-up on this matter,” Auditor General John Muwanga noted in the report released recently.
According to the report, government had in the agreement indicated that it would pay value added tax on the products of all companies envisaged under the project from the first year of the project activities ending after a period of 11 years from the year of handing over the 26,500 hectares of land.
The company would then, the report notes, refund value added tax paid by government with interest over a period of eight years in eight equal installments, including accrued interest starting in the twelfth year.
However, due to government’s failure to provide the balance of the required land, the Ministry of Finance, Mr Muwanga noted, has continued to settle all tax obligations on behalf of the company, writing off arrears worth Shs194b in the 2019/20 financial year while accumulated arrears worth Shs79.8b in the year under audit (2020/21).
Therefore, Mr Muwanga indicated that: “Under the circumstances, it is apparent that instead of paying for 11 years, government has so far paid for 17 years and is still continuing while chances of recovery appear to be slim.”
However, in an explanation contained in the Auditor General’s report, the Ministry of Finance noted that government had provided additional land in Sango Bay bringing the total land so far provided to 22,500 hectares.
Therefore, it was noted, the balance of 4,000 hectares is being sought in collaboration with Ministry of Agriculture, adding that once this is completed, the company shall start refunding taxes accumulated accordingly.
The report also indicates that the Ministry of Finance had further written to the Attorney General, seeking advice on how the agreement could be amended to answer queries raised in audit reports.
However, Mr Muwanga asked Ministry of Finance to liaise with responsible agencies and ministries to expeditiously address the land issue.
Tax arrears buildup
The Auditor General also expressed concern over continued buildup of government tax arrears. According to the report, as of June 30, 2021, a total of Shs212.7b has already accumulated in tax arrears, which continues to negatively impact revenue collection efforts by Uganda Revenue Authority.
During the period ended June 2019, the report noted, the Ministry of Finance wrote off tax arrears for diffeent projects worthShs809.7b.