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During an interaction with finance ministry officials, Members of Parliament (MPs) on the finance committee raised concerns over a proposal by the ministry to grant a one-year Income Tax exemption to the Bujagali Hydropower project.

The concerns raised on April 9, 2024, came as lawmakers questioned the rationale behind the tax break, particularly given the project's outstanding debt to the Government.

MPs Voice Concerns

Paul Omara (Otuke County, Indp), objected to the exemption. He plans to submit a dissenting report. Bujagali reportedly owes the Government a significant sum (shillings 1.2 trillion).

“We investigated Bujaagali and what we found out was horrendous. Now, another tax waiver? That one I am not supporting. I will go with a minority report on that,” he said.

Loy Katali (Jinja District Woman) expressed concern that the tax break undermines efforts to raise government revenue. She asked whether Uganda needs to exempt yet the country is looking for funds.

Parliament during plenary on Tuesday, April 9, 2024. (Photo by Miriam Namutebi)

Karim Masaba (Mbale City, INDP) raised questions about the last-minute addition of the exemption to the Bill: “Why is the minister introducing the exemption at committee stage and yet it was not reflected in the original Bill tabled during plenary?”

Government's Justification

The finance ministry, represented by its economic affairs director, Moses Kaggwa, defended the exemption as a measure to reduce electricity tariffs.

He argued that high tariffs could harm businesses and the exemption is a temporary measure until an audit is completed.

“The way a tariff is computed, it includes tax. High tariffs will affect businesses and we do not want to see businesses close. We agreed with Parliament to extend for a year until the Auditor General completes the audit. Once the audit ends, this will stop,” Kaggwa said.

Payment solutions to be taxed

Finance state minister Henry Musasizi also proposed the expansion of Excise Duty to include adhesives, grout and lime in the 2024/2025 financial year.

He explained that the intention of the proposal under the Excise Duty (Amendment) Bill, 2024 is to create fairness in the tax regime.

"This is not a new tax because government already imposes Excise Duty of shillings 500 per 50kg bag of cement and Uganda Revenue Authority has been collecting this tax," he said.

He further proposed excise duty beyond mobile money transactions to include other similar payment solutions and agent bank withdraws, saying "This proposal (0.5%) is aimed at equalizing the tax treatment of similar services.”

According to Musasizi, the current tax mainly applies to the poor, who largely use mobile money services to conduct transactions, which is not applicable to other payment and withdrawal services that are used by the poor, hence the need to expand the scope of services.

More taxes on fuel

The minister also tabled a proposal for an increase of shillings 100 per litre in excise duty on fuel products before the committee.

He said the proposal is in line with a government decision following an agreement with Parliament to increase excise duty on fuel products by sh100 per litre every two financial years, except the COVID-19 period.

“Since the economy has recovered, we think it is time to make the adjustment. In addition, over the last few years, the Uganda shilling has depreciated, and the price of fuel has increased, yet tax has remained the same,” he said.

According to the Minister, the increment will generate an additional revenue of shillings 200.92 billion.

Committee chairperson Amos Kankunda said the proposal will force citizens who rely on kerosene into darkness as they depend on the combustible hydrocarbon liquid for lighting.

He said locals will spend more to have lighting and questioned whether it was a reasonable tax increase.

Additionally, Dickson Kateshumbwa (Sheema Municipality, NRM), called on the minister to move away from imposing taxes but rather find measures leading to economic growth by proposing incentives to sectors that have the potential to generate more revenue.

"We need to push for economic growth, even if it is not related to revenue collection. Right now, we are only looking at the short-term gains and not long-term," he said.

However, some MPs expressed concerns about their (additional taxes) impact on citizens, particularly lower-income earners.