Private Sector Demands for Fair Tax Regime

The private sector, led by the Uganda Hotel Owners Association, UHOA, is demanding changes in the tax incentives regime, saying the business environment is becoming harsher for them. This was at a dialogue between the private sector organizations and the government agencies led by the Ministry of Finance, Planning, and Economic Development, aimed at finding a meeting point between the two sides over tax matters, specifically tax incentives, tax policies, and tax administration regarding investments.

UHOA Chairperson, Susan Muhwezi, called the current tax regime unfavourable for the private sector, singling out tourism, in which she said, operators pay up to 27 licenses and taxes, including Corporation Tax, Withholding Tax, VAT, Local Service Tax, Property Tax, Ground Rates, Local Hotel Tax and Local Government Tax. Other tax items include restaurants, swimming pools, entertainment, Billboards liquor stores, bars, music copyright, and movie copyright, on top of paying liquor tax, Uganda Tourism Board License, Tourism Development Levy, Trade Union contribution, and Health Compliance Tax, among others.

Muhwezi demanded that these taxes be consolidated into not more than four packages, while the licenses be consolidated into one, instead of dealing with 27 different offices which is both costly and tedious. She also demanded more government input into the tourism sector including a bigger budget than the 2 percent budgetary allocation, which contrasts poorly with the 7 percent sector contribution to the GDP. 

She added that the sector was the most heavily indebted and with the highest level of loan default of 12.1 percent compared to the national average of nonperforming loans of about 5 percent, especially since the outbreak of COVID-19. "Why can't the government come in to rescue tourism investments in distress?," she wondered, adding, "Ndere Centre is an important investment in the country but it is up for sale over-indebtedness. Can the government rescue it so that we stop the notion that it only cares about foreign investors?" 

Following the Covid-19 outbreak, the government introduced several rescue packages including 62 billion shillings for the tourism sector, 200 billion for small businesses, a bank loan restructuring program, and a tax waiver offer, among others. However, all the programs have been considered underperforming due to the low disbursement of the funds. On the tourism package, Muhwezi says just about 96 people had applied by December 2022 when the deadline for application was, more than a year since the launch of the program, while 43 got facilitated.

"The was because the conditions were very tough and definitely out of reach for the majority of the investors who needed the relief," she said. On the waiver of taxes offer, Muhwezi says the private sector didn't get what they were promised because instead of a waiver, the taxes were deferred, and many companies could not pay the accumulated tax bills, hence making the indebtedness worse.

On access to affordable finance, Muhwezi asked for a special package at UDB with an interest rate of 10 percent or below. Under the current circumstances, she informed the government that they will not afford the Tourism Levy, but that, should it be made easy for them, then there should be a contribution from the levy fund towards the support of the tourism associations.

She also demanded better tax incentives like Zero-rated VAT on hotels to attract investments into the sector, as well as tax exemptions on construction materials for hotels especially in support of preparations for the hosting of the Africa Cup of Nations football tournament, citing Hoima as a venue yet with no adequate accommodation facilities. The different business associations also handed over their statements to the Prime Minister and the Ministry of Finance, who promised to study them and organize another response meeting with the business leaders.

PM Nabbanja outlined government interventions including the construction of roads, schools, health centers, and electricity, among others, saying that the taxes from the private sector were being well utilized. She promised that electricity to factories would start costing 5 US cents per kilowatt hour "when Umeme leaves next year."

On incentives, Nabbanja said the tax incentives regime was transparent and open to everyone who meets the conditions, including the share of export production, as well as the sector invested in.

These include agro-processing, IT, manufacturing, industrial and commercial buildings, and hotel construction in rural areas, among others.

She also noted the tax exemptions on imports like agriculture inputs and machinery, industrial equipment, and raw materials, as well as on investments in mining, and renewable energy. She, however, said that the incentives regime was not static and that it would be reviewed soon, this time, after meeting the private sector, but said the Government will go slow to avoid foregoing too much revenue in incentives.

"We must also be mindful of the need to safeguard our revenue base, as over-reliance on tax incentives can lead to revenue foregone and could thus adversely impact the government's ability to finance critical public services," said the Premier. Evelyn Anite, the Minister of State for Investment and Privatisation said the government needed to work closely with the private sector to grow the economy ten-fold to 500 billion dollars.

She urged the private sector players at the conference including commercial farmers, those in ICT, manufacturing, tourism and hospitality to take advantage of the affordable financing from UDB.