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URA Wants Tax Waivers Removed

URA’s call for their removal is likely to amplify long held suspicion on whether tax waivers are given out after thorough analysis to see if the country benefits. There are also questions on the companies that are chosen to benefit from these tax waivers
Some companies benefit from tax waivers at the disadvantage of others in the competition

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Uganda Revenue Authority-URA wants tax waivers removed, arguing it has had no impact other than being a revenue leakage hole.

This is an unprecedented call from the revenue body, adding a voice to several advocacy groups that have long argued that tax waivers don’t benefit the country.

  Doris Akol, the URA commissioner general, says that they had looked at companies that got tax advantages but hardly anything special they add to the economy. 

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A tax waiver is when a company or an individual engaged in certain activity where they supposed to pay are granted chance not to pay. This can be mainly to make sure their business grows by re-investing the money that is supposed to pay for tax. 

But URA’s call for their removal is likely to amplify long-held suspicion on whether tax waivers are given out after thorough analysis to see if the country benefits. There are also questions on the companies that are chosen to benefit from these tax waivers.

Last year the amount of money lost due to tax exemptions in 2017/18 in Uganda reached 1.4 trillion Uganda shillings, most from international trade tax and Value Added Tax (VAT) related exemptions, according to civil society advocacy groups.

Akol said tax waivers add undue advantage to companies getting them especially when their counterparts in the same industry don’t have them.

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Regina Navuga, an expert on trade and taxation at the Southern and Eastern Africa Trade Information and Negotiations Institute (SEATINI) Uganda, said they were not happy with the way the tax waivers were given out, asserting they have long questioned the criteria used to choose companies benefiting.

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  Tax exemptions in Uganda have long existed, falling within the tax laws and those that are granted by the executive arm of government.

The waivers granted within the law are spelt out in the tax procedures code annually. These exemptions apply to companies or individuals that fall in that bracket.  

The waivers given discretionary and not grounded in the law are the problem. 

Right from the time of former President Iddi Amin, a minister could discretionary order that exemptions be given to a particular company or individual.

Over the years, Uganda has witnessed a distinct move away from ministerial discretion in the area of exemptions.

The exemptions, which are not provided for by statute, usually take the form of the government paying taxes on behalf of taxpayers or simply waiving off the tax.

In 2014, the Tax Procedures Code was amended to completely remove the minister’s discretion to grant any exemptions.  

SEATINI, an advocacy group, published a report in April 2019 showing that despite the abolition of statutory ministerial discretion in tax matters, government still issues tax waivers similar to the abolished ministerial discretion.  

The report indicates even with those businesses deemed to be of strategic importance, sometimes areas exempted do not directly relate to the company.

“In some instances, some tax heads that do not even directly relate to the companies are also exempted such as PAYE. Government agencies are instructed to pay PAYE taxes for contractors/ employees for some of these companies,” SEATINI report quotes an interviewee.

The advocacy group found that two of the beneficiary companies were found to have been exempted from almost all tax heads, including corporation tax, VAT, Stamp duty, import duty and withholding taxes.

In June 2017, government paid 77.2 billion shillings to Uganda Revenue Authority (URA) on behalf of seven private companies. In the financial year 2017/18, government was expected to pay 102.81 billion shillings.

A Parliament’s Budget Committee last year discovered that the majority of the agreements between the companies and government on which these payments were based were not grounded in the law or lacked supporting evidence.    On the other instances, some taxpayers both public and private that have not complied with their tax obligations but URA is stopped from enforcing to recover the money.

As at January 2018, up to nine companies fell in this category and the tax body’s hands were tied and couldn’t recover it.

Paul Lakuma, a research fellow at the Economic Policy Research Centre, said at times, a company is granted a tax holiday within the law but it exploits it to extend or increase its tax advantages.

An April 2019 report, Lakuma found that some companies given tax holidays in Uganda invest in the first four years.   In the fifth year, their investments start to fall and by the time they reach the tenth year, which is usually the expiry year, some migrate while others change names.

Lakuma described these companies as "footloose firms" literally meaning tax cheats.

  "I have seen companies change names after-tax incentives have expired," he told URN.

Navuga said they want URA and government to review these incentives every after five years to see if the companies given are benefiting the country through employment or increasing investment. If they are not, then they can be cancelled.

Beyond tax waivers, Akol said they were investigating particular multinationals who are trading with related companies based in notorious tax havens.

Technically referred to as transfer pricing, companies report to have received loans or services from related companies where they have to pay for them and reduce their tax bills.

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