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Tax holidays to Ugandas economy

Part of the Kampala –Entebbe Highway under construction

Despite studies showing tax incentives as ranking among the very least of investors’ worries, the government still grants them to investors. The government has for decades pegged tax incentives to attracting investment, creating jobs and boosting trade. Recently while issuing developers’ licences to three flowers at Wagagai Flower Farm in Wakiso District, the Minister of State for Privatisation and Investment, Ms Evelyn Anite said the government will continue offering tax holidays in addition to free land as and when investors want them.

According to a recent study titled: Costs of Tax Incentives to Uganda’s Socio-Economic Landscape, tax incentives have not delivered on their expected purpose such as providing jobs, revenue to the government and attracting investment as anticipated.

The study by local and international civil societies indicated that on average, government spends at least Shs75 billion every financial year on a range of companies that are entitled to tax holidays and exemptions on import and excise duties.

Some of the beneficiaries include: Roofing, Cipla, Steel and Tube, BIDCO, Kingdom Kampala, Emmaus, Picfare (Southern Range Nyanza), Sameer Agriculture, Vinci Coffee, and Power Projects. The amount spent on exemption every year is almost Shs14 billion higher than the financial year budget allocated to Mulago Referral Hospital.

Revenue foregone over the last eight financial years amounts to about Shs7.6 trillion. This is an equivalent of slightly more than half of the budget needed to finance the next financial year’s budget. In addition, tax holidays and preferential tax treatment create other unintended and unforeseen tax planning opportunities that are commonly exploited by corporations.
Several companies, including multinational corporations, employ all kind of tricks just to avoid paying their due share of taxes. This is in addition to outright tax evasion which has since become a way of life to most corporations operating in the country.

 How relevant are tax holidays to Uganda's economy?