21 April 2017

Uganda: New Govt Tax Waivers of Shs 23 Billion Anger MPs

A new list of private companies that will earn tax waivers from government in the financial year 2017/18 has elicited loud cries of disapproval from members of Parliament.

According to MPs, tax waivers are a waste of public resources. The harsh MPs' criticism came after David Bahati, the state minister for finance, tabled a fresh list of tax waiver beneficiaries in the House. In total, government will pay at least Shs 23bn in tax waivers in the 2017/2018 financial year for about 20 companies.

"We are in this to promote investment. That is very important because the support for the economy is key for our children to get jobs and achieve the Vision 2040 and we are doing it in a transparent and more accountable way since the money is appropriated through Parliament," Bahati said on Wednesday.

Roofings Rolling Mills Ltd has a 10-year corporation tax incentive, which runs up to June 30, 2019, while Steel and Tube Industries Ltd will have its corporation tax paid by government to Uganda Revenue Authority (URA) up to December 2021.

Pearl of Africa hotel project, under Aya Investments (U) Limited, is also listed among companies whose Value Added Tax (VAT) and Import duty tax have been paid by government since 2013.

AYA Investments has not paid its taxes since 2013 as a sweetener for the company to operate in the country. This year, government is paying Shs 3.7bn in import tax for the firm.

Italian investor Vinci Coffee Company Limited, is the only company whose 10-year government intervention will take effect next financial year and will be exempted from import duty, VAT, corporation tax and stamp duty for value addition to Ugandans' coffee.

Government also extended the exemption period for companies like Xiang Long International, Christex Garment Industry and Sameer Agriculture, which expired in 2016.

A report by Tax Justice Network and ActionAid International in 2012 showed that tax incentives in Uganda reduced revenues available to fight poverty. It said the losses from tax incentives and exemptions amounted to about Shs 690bn in 2009/10, a figure almost 20 times the budget of Mulago national referral hospital.

In 2013, the then International Monetary Fund (IMF) resident representative to Uganda, Ana Lucia Coronel, said Uganda's tax incentives, which continue to hurt tax collection growth prospects, had "outlived their usefulness."

She said they are not an effective tool to attract investment and the Ugandan government must end them. Analysts have argued that genuine investors don't want tax incentives but sustainable electricity, good road network and a conducive work environment.

LEGISLATORS REACT

Legislators on the Budget committee were however, unhappy with the tax waivers to foreign companies, including Aya. The MPs took issue with Aya Group. They wondered why Aya still receives tax exemptions yet it joined the market in 2006, before the Commonwealth Heads of Government Meeting (CHOGM) in 2007.

"There are a lot of question marks about it because they seem to be untouchable. We need to probe how it gets these favours and preferential treatment over our local companies. No wonder a minister was arrested because of him," said Alex Ruhunda, the Fort Portal Municipality MP.

Richard Otieno-Okoth (West Budama North), said if a company pays corporation tax, it is already making profit, hence no need for exemptions.

"You have given this company free land and given exemptions. Why would government go to the extent of taxing Ugandans to raise money for somebody who has already made profits? This must stop," Okoth said.

Kumi MP Charles Ilukor wondered why government has ignored incessant pleas from the local steel industry for tax incentives, in favour of foreign steel investors.

The committee directed the minister to present a detailed report, giving a breakdown of how much each company will receive plus benefits, which Uganda has received from foreign investors.

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