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According to International Growth Centre, tax incentives reduce Uganda’s tax ratio to gross domestic product by 1.6 percent, which is relatively high
Government must reduce tax incentives if Uganda is to achieve an increase in tax to gross domestic product ratio, according to the International Growth Centre.
Speaking during the sixth Economic Growth Forum in Kampala yesterday, Dr Richard Newfarmer, the International Growth Centre country director, said tax incentives reduce Uganda’s tax ratio to gross domestic product by 1.6 percent, which is a relatively high percentage.
“This is really high. Government needs to reduce tax incentives. Uganda collects only about 11 percent of gross domestic product in tax revenue, well below the average for other countries at its level per capita income. As a result, its level of public investment is relatively low compared to fast-growing low-income counterparts,” he said.
A report, authored by Seatini and supported by USAID, which ws launched last month, indicates that over the last three financial years, government had foregone more than Shs5 trillion in taxable revenue, which translates into 3.6 per cent of gross domestic product.
The foregone revenue had resulted from tax incentives and exemptions advanced to both local and mainly foreign investors, which at the same launch, Ms Izabela Karpowicz, the IMF resident country representative, said tax exemptions have less impact on the poor and vulnerable, which therefore, makes them more regressive than progressive.
However, Mr Moses Kaggwa, the Ministry of Finance director economic monitoring, noted that government’s assessment of the foregone revenue was much less than what the report had provided, with Dr Silver Namunane, the Ministry of Finance tax policy revenue domestic mobilisation specialist, putting the figure at Shs2 trillion.
Therefore, Dr Newfarmer noted that for government to increase revenue mobilisation it must reduce tax incentives and pay attention to promotion of exports and domestic value addition to up scale measures to finance the economy as well as ensure that the economy becomes more resilient to climate change and external shocks.
The economy has been going through a number of challenges resulting from Covid-19 related disruptions and recently a surge in inflationary pressures.
Dr Newfarmer also noted that there was need to grow trade to enhance the process of structural transformation and productivity through sustained growth and expansion of the country’s exports market, beyond the current over reliance of coffee.
Speaking at the same event, Mr Ramthan Ggoobi, the Ministry of Finance permanent secretary, said government had come up with key action points, among them boosting domestic revenue mobilization, ensuring fiscal sustainability, maintaining macroeconomic stability, openness and access, to build economic resilience.
“The others are leveraging private financing, attracting and development of new technologies, [building] a labour force equipped with skills, adapting mitigating to climate change and strengthening data and information systems for better targeting of government programmes,” he said.
Raising government revenue
According to Dr Richard Newfarmer raising government revenue is important because they are a key component of domestic savings, and raising domestic savings is necessary to finance investment.