Tax holidays not crucial for attracting investors — experts
Nov 08, 2014
An expert in taxation and investments has advised the Government to shun foreign investors, who ask for tax holidays before investing, saying tax incentives are detrimental to developing economies.
By Francis Kagolo
An expert in taxation and investments has advised the Government to shun foreign investors, who ask for tax holidays before investing, saying tax incentives are detrimental to developing economies.
The head of PriceWaterhouse Coopers in Uganda, Francis Kamulegeya, said although tax holidays can portray a country as investor-friendly, often they are not one of the key incentives genuine investors look for.
He said access to water, quality of education and human capital, market, rule of law, an enabling environment and the quality of infrastructure are the most important incentives for investors.
“Tax holidays can be very expensive to administer compared to the value the country is looking for. Sometimes, it is revenue foregone when home countries of multi-national companies decide to tax even the profits made elsewhere,” Kamulegeya said.
For long, the Government has used tax holidays to attract foreign investments with companies such as Bidco being one of the beneficiaries.
According to Kamulegeya, tax holidays also cause corruption and distortions in the market, especially when old companies which have endured poor conditions such as ill-developed infrastructure are neglected in favour of new ones.
He was speaking during the first social-economic summit of the Civil Society Private-Public Sector Forum at Speke Resort Munyonyo in Kampala.
Organised under the theme; Achieving Uganda’s Vision 2040 through smart partnerships, the conference aimed at enhancing dialogue between the civil society, private and public sectors to spur effective planning for development.
In a separate interview, the Uganda Investment Authority boss, Frank Sebbowa, concurred that genuine investors would discard tax holidays because they imply that the project is not viable.
“Besides, tax holidays are political’; when the Government changes its mind the project will fail,” he noted.
Sebbowa observed that Uganda like most African countries is using tax holidays because of the limited market and being less attractive to investors.
But Kamulegeya advised that if they are to be used, tax incentives should be transparent and targeted to encourage the private sector to generate social benefits and fund infrastructure such as bridges and roads.
Participants at the conference also implored the Government to walk the talk when oil revenues start coming by investing the funds wisely to develop infrastructure and human capital.
To improve the health sector, they called for a review of the national policy so that the health ministry concentrates on strategic areas such as regulation and policy guidance as opposed to implementation.
“We cannot say that teachers are paid better than medical workers, but health service delivery is still poor. This shows that it is not just the pay, but motivation, accountability and supervision are lacking,” said Dr. Ian Clarke, the founder of the International Hospital Kampala.
Irish ambassador Cronin Donal advised Uganda to fight corruption by amending the laws to shift the burden of proving the source of excessive income on the defendant.
“If you have fancy houses and cars, you should prove the source of income. If you fail, the properties should be sold to the highest bidder,” he advised.
Donal said there is need to increase budget transparency and oversight by providing civil society and the general public opportunities to engage in decisions about how public resources are raised and spent.
Kamuli district chairperson Salaamu Musumba proposed that the Local Government Act be amended to empower district to collect more revenue to provide better services to the people.