Foreign investment incentives eroding key tax base-URA

URA Commissioner General, Doris Akol. PHOTO: Wilfred Sanya  

Tax incentives on foreign direct investment are denying Uganda up to 70% of potential corporate tax revenue, the Uganda Revenue Authority's Commissioner General, Doris Akol has disclosed

Speaking at a public dialogue on national development in Kampala, Akol said such policy contradicts the country's plan to expand local revenue to fund the national budget.

She said the commitment by government to increase the tax base was undermined by policy contradictions and a pervasive corporate culture of under-declaration of sales.

Akol cited the central bank's indifference to cryptocurrencies, even when many Ugandans were already transacting using the digital currencies.

"Some goods are coming through our customs that have been purchased using loyalty points or air miles and we clear them. But there is no policy on cryptocurrencies," she stated.

Ramadhan Ggobi, a board member of the Uganda Development Corporation said the private sector in Uganda was concerned about increasing taxes and borrowing levels.

Ggobi argued that attempts to increase the country's tax base were being directed at the same tax payers, creating a burden on a small group instead of casting the net wider.

"Government needs to reduce the appetite for direct taxes and rely more on indirect taxes and improve tax administration," he advised.

Akol denied that URA was seeking to introduce more taxes to raise domestic revenue and part of the answer lies in the huge informal sector which accounts for 60% to 70% of economic activity.

She, however, noted that a different approach was required to entice the sector which employs many Ugandans, accounts for the increase in inclusive growth but heavily relies on cash.

The dialogue, organized by the Advocates Coalition on Development and Environment (ACODE), sought views from experts about funding for the new national development plan.

Dr Albert Musisi, from the macroeconomic policy department at the finance ministry said funding for the plan requires increase in domestic revenue but more debt was inevitable.

He explained that Uganda will have to tax more and incur more debt to finance development projects in the face of dwindling development grants, concessional loans and growing needs.

Musisi argued that Uganda's debt to GDP ratio was still low, compared to a country like Ethiopia, which has attain rapid growth with a high debt to GDP ratio of up to 54%.

The ACODE executive director, Dr Arthur Bainomugisha said the new development plan must pay attention to unemployment, shrinking the informal sector and investment in agriculture.

Clara Mira, the International Monetary Fund (IMF) country representative said Uganda needs to create at least 600,000 jobs every year to absorb the growing labour force.

Patrick Ayota, the National Social Security Fund (NSSF) deputy managing director rallied for the creation of a seed fund to support young enterprenuers with exceptional start-up ideas.

Dr Elly Karuhanga, the board chairperson of the Private Sector Foundation of Uganda decried crippling taxes levied on the sector and proposed broadening of the tax base.

"Uganda is endowed with more than 50 different types of minerals, which we can exploit to create jobs and prosper. But getting concessions is difficult," he stated.