In the 2022/2023 Financial Year, the Ministry of Finance proposed an amendment of Section 21(1) (aj) of the Income Tax Act to exempt the income of a hospital facility developer, whose investment capital is, for over at least 10 years from the date of commencement of business, at least $5 million (Shs18.9b).
The same was also extended to the Value Added Tax (VAT) Act (Paragraph 1(rr) of the Section Schedule to the VAT Act).
One of the reasons behind this is the move toward harmonisation of the tax statutes in the two laws; the Income Tax Act and Value Added Tax Act.
Another reason is around attracting investment in the health sector. However, the exemption of at least $ 5 million is too low compared to the cost of developing or constructing a hospital facility in Uganda.
That makes it unrealistic? The comparison, the construction of the Mulago Specialised hospital totalled more than $22 million (Shs83b). The International Specialised hospital of Uganda (Lubowa) was anticipated to cost $397m (Shs1.5 trillion). The rehabilitation and expansion of Yumbe and Kayunga general hospitals were approved to cost $41m (Shs155b) on September, 18, 2013.
In addition, the Uganda Cancer Institute, for addressing the training of specialists, procurement of specialised cancer equipment, and construction of a centre of excellence requires $38m (Shs143b).
As you may be aware, the tax exemption granted to anyone, results in an increase in the tax burden to the taxpayers indirectly or directly. On one hand, and, or budget cuts for the social services such as health and education due to the revenue foregone.
According to EPRC Research Series No. 148, (April 2019), Uganda is estimated to lose 1 percent of the gross domestic product (GDP) in foregone revenue.
Given Uganda’s GDP of Shs109 trillion in 2018, tax incentives were estimated to cost Shs1.09 trillion and this is more than what was allocated to the agricultural sector (Shs828b) during the 2018/2019 financial year.
Therefore, the government should reduce the use of tax incentives to drive investment but rather focus on improving the core divers of investment such as infrastructure development, political stability, and a sound macroeconomic environment.
The agenda should be reinstating the role of the state in national development. This will help to check on unnecessary spending, numerous awarding of tax incentives on even the borrowed money as well as checking on rising illicit financial outflow.
The government should also ensure that the incentives awarded trickle down to the targeted beneficiaries. Therefore, such unrealistic tax exemptions should be checked.