MPs, Kasami clash over tax incentives to investors

By Moses Walubiri

The Secretary to the treasury, Chris Kasami, has warned against a haste rip up of tax waivers to a host of companies, as MPs order for a review of the procedure upon which the selection of beneficiaries is premised.

Interfacing with MPs on the finance committee on Tuesday, Kasami said that the tax incentives were part of government's contractual obligation with different companies whose termination or review could result into costly litigation to government.  
"Going forward, you can choose to change the policy, but at the moment we cannot afford to rescind these tax incentives because it's a contractual obligation", Kasami told MPs.

Flanked by the minister of Finance, Maria Kiwanuka, Kasami justified the tax waivers, which have since been replaced by government paying corporation tax for selected companies, as a necessary financial tool to woo investors.

"This policy is not unique to Uganda. Even other regional countries like Rwanda and Kenya have for long deemed it an integral component of their investment promotion drive," he added.

However, armed with a petition by one of the pioneer local investors - Sembule Steel Mills Ltd - for government to consider it for similar incentives, MPs Geofrey Ekanya, Xavier Kyooma, Henry Musasizi, Amos Lugolobi, Katoto Hatwib and Arinaitwe Rwakajara faulted government's commitment to shoring up struggling local investors.   

Sembule claims that it's constrained to survive in a competitive market where its direct competitors are exempted from some tax components.

Documents submitted by Uganda Revenue Authority (URA) to the committee indicate that seven companies including Sembule's prime competitors, Steel and Tube Industries Ltd, are beneficiaries of tax incentives.

Others include; Picfare Industries Ltd, Quality Chemicals, Roofing's Rolling Mills, Bidco Uganda Ltd, Sameer Agriculture and Livestock and Southern Range Nyanza Ltd.

"We want government to explain the procedure of selecting these companies and how much the country is saving in terms of costs on imports from these incentives," Musasizi said.

MPs contend that despite being ranked among the best performing economies in the region for some time, the growth of domestic tax revenue in Uganda has failed to keep pace with growth of the economy due to many tax incentives.

In this financial year, Uganda's projected tax revenue to GDP ratio of 13.2% is low compared to about 25% and 17% for Kenya and Tanzania respectively.

Quoting a World Bank report, shadow finance Minister, Ekanya, avers that over 92% of investors in Uganda currently enjoying tax incentives would have invested their capital even without these incentives.

And as a result, the report notes, Uganda lost approximately 2% of its GDP in potential tax revenue amounting to US$ 272m in financial year 2009/10.