UN tells govt to avoid tax holidays
What you need to know:
- The UN says that whereas government has done an important job towards strengthening tax policy and administration, it is difficult to realise planned revenue if tax holidays and exemptions are not checked
The United Nations has told government that tax holidays and exemptions must be avoided if government is to achieve domestic revenue mobilisation.
Speaking at the launch of government’s investment financing strategy in Kampala yesterday, Ms Susan Ngongi Namondo, the United Nations resident coordinator, said whereas government has done an important job towards strengthening tax policy and administration through the domestic revenue mobilisation strategy, it is difficult to realise planned revenue if tax holidays and exemptions are not checked.
“There have been reservations with regards to tax incentives. Whereas this approach has been used in many developing countries as a bait to attract foreign direct investment, there have been concerns around transparency and effectiveness of tax holidays and exemptions,” she said, noting that tax holidays and exemptions should not be seen as an alternative but a complimentary to enable business climate.
Therefore, Ms Namondo said there was “need to focus more on addressing basic energy and transport infrastructure gaps, reduce bureaucracy and cost of administrative requirements, and strengthen the rule of law in business and contractual processes, than focusing on tax incentives.
“If tax incentives are maintained, they should be kept at the lowest levels and restructured to ensure transparency and fairness in their implementation,” she said.
Studies, including the government tax expenditure report, among others, have shown that more than Shs5 trillion in taxable revenue is foregone due to exemptions and related incentives.
Ms Namondo further noted that the growing public debt is tending towards worrisome levels, which therefore, demands that traditional sources of revenue are complemented by policy and institutional reforms that will enable innovations such as public-private partnerships, philanthropy, climate financing and Islamic bonds financing, among others.
“I am glad [government] has already identified some of the necessary reforms, but their eventual implementation will require stronger coordination for results. Mobilisation of development financing is as important as ensuring efficiency, and transparency in utilisation of these resources at national and sub-national levels for achievement of development goals,” she said.
During the same meeting, Ms Elsie Attafuah, the United Nations Development Programme resident representative, said in a speech read by Ms Sheila Ngatia, the UNDP deputy resident representative that given the size and scale of requirements, domestic revenue mobilisation was not enough, thus requiring significant contributions from external and domestic private investments.
Ms Ngatia said Covid-19 and other crises as well as structural factors such as high levels of poverty, rapid population growth, weak economic growth levels, and a large informal economy, make mobilising financing difficult for many developing countries.
Ms Ngatia also noted that with only seven years remaining before the deadline to deliver on the Sustainable Development Goals (SDGs), Uganda was still far away from where it should be, noting that efforts to finance SDGs must respond to an exceedingly challenging global environment characterised by complex uncertainties arising from climate change, inequalities, new technologies, and pandemics.
She also said there is a deepening financing challenge that is driven by uneven recovery from Covid-19 and the war in Ukraine.
Thus, she noted, it is crucial to develop strategies that should identify innovative financing solutions, co-investment platforms such as public-private partnership, enhance business environments, advance financial deepening and increase efficiency of public spending.