Uganda: Shs1.5 Trillion Lost Annually in Tax Exemptions – Report

Kampala — At least $470m (about Shs1.5 trillion) is lost in tax exemptions every year, a study commissioned by Oxfam and Southern and Eastern African Trade, Information and Negotiations Institute (SEATINI) Uganda, indicates.

According to the study, titled “Fairness Tax Monitor: Country Study for Uganda” whose intention was to assess the level of tax fairness, excessive tax exemptions have done more harm than good, approving the move to scrap the policy.

“The report noted that Uganda’s revenue collection effectiveness has stagnated between 10 and 12 per cent. The growing informal sector (with central region alone accounting for 36 per cent), excessive tax exemptions, unaccounted financial outflow (capital flight and illicit flows), alongside tax-administration gaps have contributed to low revenue collections,” reads part of the report launched recently.

It further reads: “Exemptions alone have cost Shs1.5b ($470m) in FY2013/14. These exemptions cut across multiple sectors, including multinational companies, certain sects of personnel providing government services, and others.”

The report also cites scenarios of double taxation. For example, similar tax heads such as ground tax by local governments, rental tax by the central government (through Uganda Revenue Authority) and property tax by traditional institutions have created elements of “double-taxation” which, the report says, cast unfairness in the eyes of taxpayers while increasing the burden on individuals.

The report also indicates that direct taxes (paid by companies and individuals directly) had increased by over 7 percentage points since financial year 2005/06 and currently stand at 32 per cent. Indirect taxes on the other side contributed 21 per cent and import taxes contributed 42.8 per cent in FY2014/15.

Statistics depict Uganda’s high dependency on international trade and the revenues arising therein making the country vulnerable to external shocks. As a recommendation, the report suggests that the government should remove tax holidays for selected companies, a move that is on-going, ensuring transparency and accountability by publishing government tax expenditure reports periodically.

The commissioner for tax policy at the Ministry of Finance, Mr Moses Kaggwa, said government is not granting any more exemptions, saying the country has enabling conditions for any investor to thrive. He cited stability and abundant opportunity in all the economic sectors as more crucial conditions for investment compared to exemptions.

He also said government will study the report and pick up recommendations that will enhance tax compliance.

SEATINI country director Jane Nalunga said government sources of collecting revenues are getting limited, thanks to the free market economy.

She said government has signed too many bilateral treaties which rob it off its right to impose taxes, saying this is something that should be examined carefully if government wants to collect more revenues to finance its development.

The Kampala City Traders Association chairman, Everest Kayondo in an interview last week, said traders, some of whom are operating informally, should not be blamed for tax evasion as evidence suggests that multinationals are the biggest tax evaders.

Tax policies

Uganda is currently implementing a number of measures to generate domestic revenue to finance service delivery and other development projects. This includes phasing out tax holidays and exemptions and capturing informal segment into tax bracket through agencies collaboration of licencing institutions such as Kampala Capital City Authority, Uganda Registration Services Bureau and URA.

Total tax collections in 2015 are projected at Shs9.5 trillion up from Shs8 trillion in financial year 2013/14. Domestic revenues are expected to increase to Shs11.3 trillion up from Shs9.7 trillion.

This will be achieved through a number of tax policy changes to the structure and coverage of taxes, and efficient improvements in tax collection and compliance. It is important that tax policies are fair and equitable to provide the much needed revenue to provide efficient services to citizens.