Parliament objects to Bujagali tax incentive

The aerial view of the Bujagali Hydropower project. PHOTO/ AKDN

What you need to know:

  • The proposal was contained in the Income Tax Amendment Bill 2022 that Mr Musasizi made to said committee.

Parliament has thrown out the government’s proposal to accord another five-year income tax holiday to the Bujagali Power project.
The proposal made by junior Finance minister (General Duties) Henry Musasizi was strongly opposed by legislators on the Parliamentary Committee on Finance, reasoning that the previous 15 years of tax holiday to the project had not seen a significant reduction in power costs.

The proposal was contained in the Income Tax Amendment Bill 2022 that Mr Musasizi made to said committee. 
He sought to amend Section 21 of the Income Tax Act to lengthen tax exemption for Bujagali Hydro Power Project from July 1, 2022 to June 30, 2027.

“The purpose of this amendment is to reduce the average electricity tariff of Bujagali Hydro Power Project by 47 percent from the US cents 10.62 per kWh,” he said, adding: “The five-year tax holiday, which was granted to Bujagali during the period July 1, 2017 to June 30, 2022, reduced the project power tariff from an average US cents 13.83 per kWh to US cents 10.62 per kWh.”

Mr Nathan Nandala Mafabi (Budadiri West) moved to find out how “this tax translate[s] in those units.” 
He wondered how “Bujagali [has not] recouped the investment” after Parliament in effect “gave them 10 years [and] another five years.”
The same sentiments were shared by Mr Muhammad Nsereko (Kampala Central). He reasoned that attempts by the government to raise revenue to pump into an already strained budget will burden taxpayers.

“Exemption means creating a gap somewhere that must be filled….You aren’t telling us the exact figure that you will be exempt. You can’t legislate in ambiguity,” Mr Nsereko said, adding: “I am not among those people who will sit here again and exempt Bujagali so that we increase the tax burden on our ordinary people as investors go home and enjoy their income tax.”
In 2017, Parliament okayed a request by then junior Finance minister (Planning and Development) David Bahati to give Bujagali a five-year exemption from paying income tax. 

Current shadow Finance minister Muwanga Kivumba (Butambala) was quick to remind Mr Musasizi that rules of engagement have since changed.
“[Parliament] took a decision that this year, until we do a comprehensive review on all these exemptions, we should be very reluctant to grant more because the revenues foregone in these exemptions are Shs7.7 trillion,” he said, adding: “If you collect Shs7.7 trillion and you forego interesting debt rollover, you will save about Shs10 trillion.”

Mr Musasizi—who confessed that the “Bujagali project hasn’t yet recouped the money”—warned that a “decision not to grant [a tax exemption [could lead] to increase in power prices.” 
This outcome, he added, will “be suicidal because we are synergising towards the cost of doing business, particularly power.”

Debt in Uganda’s power sector must enhance, not undercut development
Mr Moses Kaggwa, the director of economic affairs at the Finance ministry, was quick to assure the committee that an exemption will translate into reduced power costs.

“For Bujagali, they had their own cost of putting up the plant, which is different from Isimba and Karuma dams,” Mr Kaggwa said, adding: “It is that money that they are trying to recover. What we put in the agreement was that the taxes would be part of the capacity charge; it was wrong, but that is what is in agreement.”