MPs want firms with tax exemptions named

Jul 08, 2013

Members of Parliament have tasked the Ministry of Finance to provide a list of all companies currently benefiting from the tax incentives and exemptions for review.They observed that tax incentives appear to have contradictory impact on the economy.

By Patrick Jaramogi

Members of Parliament have tasked the Ministry of Finance to provide a list of all companies currently benefiting from the tax incentives and exemptions for review.

They observed that tax incentives appear to have contradictory impact on the economy. Governments decision to grant tax incentives is precipitated by policy considerations like stimulating employment and development as highlighted in the Investment Code Act 1991 but experts have urged that such decisions has instead led to huge loss in tax revenue.

The Africa Development Bank (ADB) estimated that Uganda lost ($272million) Sh690 billion in tax exemptions in the years 2009/2010 while Uganda Revenue Authority figures indicate that revenues foregone due to tax exemptions have shot up from Sh481.98 billion in 2005/06 to Sh1,231.60 billion in 2009/10

“Government should design a transparent procedure for managing and granting tax incentives and exemptions,” said Isaiah Sasaga Budadiri East MP.

“We need proper guidelines and policy formulation and review of all the existing tax incentives and exemptions,’ said Kenneth Lubogo (Bulamogi).

Rubirizi County MP Betty Mbabazi said the populace should apart from paying tax also demand government for accountability.

Matthias Kasamba (Kakuuto) demanded that the firms with tax exemptions over the alast five years be catalogued for evaluation.

The MPs made the recommendations during a two day Tax Justice workshop organized by Oxfam Novib, Tax Justice Network Africa and the Democratic Governance and Accountability Program (DGAP) at Lake Victoria Serena Resort in Entebbe. The workshop whose theme was promoting fair and transparent Tax incentives and Exemptions for socioeconomic development attracted MPs, academia’s, Finance officials and URA tax experts.

Shadow Finance Minister and Tororo County MP Geoffrey Ekanya demanded for a comprehensive assessment of costs and benefits that have accrued from the introduction of tax exemptions.

“Only two factors attract investments, productive labor and raw materials. Our economy should not be used as a manure of development for others. We need the list of companies with tax incentives and exemptions from Ministry of Finance,” said Ekanya.

He however noted that some exemptions were necessary but called for transparency. “There is a lot of leakage. We have serious tax leakages and we need to control these leakages,” he said. He said tax incentives must only be given where necessary and after thorough studies.

Before 1991 the Minister for Finance was the only authority with discretionary powers to grant tax incentives and exemptions. The minister was required to publish his/he decision in the Gazette but had no obligation to explain the decision. After 1991 the Investment Code Act 1991 introduced the tax incentive and exemption regime that listed a number of different taxes that a qualifying person would be exempted.

The tax exemption regime was transplanted to Value Added Tax Act (VAT), 1996, the Income Tax Act 1997, some into the Stamp Duty Act the East African Community Customs Management Act, 2005 and the East African Excise Duty Management Act.

But these exemptions according to Moses Kawumi a lawyer and tax expert was only intended of the firms generated new earnings or savings through foreign exchange through exports, utilized raw materials, created jobs for locals, and introduced advanced technology.

“Most of the companies that were granted five year tax holidays are still enjoying 10-15 years down the road.  Most of these are footloose companies that close shop at the end of each tax holiday and re-open in other names or shift to other countries,” said Geoffrey Ekanya the Shadow Finance Minister.

Issa Kikungwe observed that the excess discretionary powers given to the Finance Minister to grant tax incentives and holidays needed “trimming”.

The MPs reaction follows a study that discovered that much as government is geared towards granting tax incentives and exemptions, there are no reliable research findings to indicate positive and sustainable impact of tax incentives and exemptions in propelling socioeconomic development.

IMF has in the recent past come to a conclusion that the tax incentive government is generously dishing out are unhealthy to the economy.
Moses kaggwa the Commissioner Tax Policy in the Ministry of Finance noted that criticisms should be positive. “We do accept there are anomalies. Let us criticize but positively. We are not perfect,” he said.

He pointed out that since she assumed office, (Maria Kiwanuka) the finance minister has never granted any tax exemption of incentive to any investor.

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