Tax exemptions not achieving targeted jobs, report shows 

In the 2022/23 financial year, government gave 36 companies tax incentives worth Shs1.4 trillion. Photo / File  

What you need to know:

  • The Auditor General noted that  22 companies out of the 36 that benefit from tax incentives, were not fully meeting the desirable employment levels of nationals 

The Auditor General has questioned why government continues to give tax incentives to companies that do not meet the perquisite of employing the required number of Ugandans.  

In his report for the period ended June 2023, Auditor General John Muwanga noted that during the 2022/23 financial year 22 companies out of the 36 that benefit from tax incentives, were not fully meeting the desirable employment levels of nationals but benefited from tax breaks worth Shs1.4 trillion. 

Government requires that beneficiary companies must have a workforce that is composed of more than 50 percent of Ugandans. 

Tax breaks are given on the understanding that they free up capital so that companies can employ more staff, majority of whom must be Ugandans.

A number of Ugandans both in and outside government have publicly questioned the significance of tax breaks, some of which are irregularly given to undeserving companies. 

Government continues to use tax breaks as an incentive to investment in priority sectors of the economy, among which include industry and manufacturing, agriculture, science and technology and value addition.  

Breaking down the waivers 

In his report, the Auditor General indicated that government had waived Shs1.293 trillion under the gazette by Parliament, in addition to direct waivers by the Minister of Finance of Shs118.5b and exemptions by the Uganda Revenue Authority Commissioner General of Shs5.5b. 

“The amount of taxes exempted are revenues that are foregone resulting into revenue loss on the side of government,” the Auditor General said, noting that an analysis of the memoranda of understanding for the various beneficiaries revealed that several companies have not achieved the outputs as stipulated, while at the same time several incentives remained un-utilised, which was against the intension of government in granting tax incentives. 

The Auditor General also noted that the amount of revenue foregone by government in granting incentives and money spent in paying taxes on behalf of the exempt taxpayers, may not easily be comparable to the low benefits derived due to other factors hindering performance of beneficiary firms. 

“Therefore, government should explore the option of putting more effort in alternative measures that make it conducive to undertake business, such as subsidised electricity, easy access to land, ensuring affordable and reliable supply of raw materials among other things that have the potential to attract business and industrialisation without having an enormous cost related to individual businesses,” the report said.