In last week’s reading of Uganda’s National Budget 2013/2014, Finance minister Maria Kiwanuka fronted bold steps to widen the country’s tax base.
Ms. Maria Kiwanuka, Uganda’s finance minister
Ana Lucia Coronel, Uganda’s IMF senior resident representative has offered a piece of advice in this regard; abandon tax incentives.
Tax incentives are exemptions from paying tax, offered to woo players into a specified activity or industry-in Uganda’s case, tax incentives are used to attract more foreign investors.
“Right now, this (incentives) is not important. Uganda has a lot to offer. It has fertile land throughout the year. For people who want to invest, that is very good,” she said.
Speaking to a select group of African journalists in her office at Bank of Uganda last week, Coronel argued that Uganda no longer needs such incentives as the climate is ideal to attract foreign direct investment without such favors.
Instead, Government should focus on improving environment for attracting foreign direct investment such as providing good infrastructure, governance, stability among others, she counseled.
She said subsidies most of the times do not serve their intended purposes as they benefit those who can do without them.
“It is very difficult to decide subsidies that will go only to the vulnerable people.”
At a recent two-day workshop on Uganda’s Local Capital and Financial Markets Summit held in Kampala, Kiwanuka warned investors that the incentives tap could be running dry, especially in the face of aid cuts.
“Investors want all weather good roads, piped water, and electricity. We (government) need to provide these, but how shall we deliver such infrastructure if you are busy asking for tax exemptions? Where will we get the money?” she said.
Last year, Action Aid International, an international NGO, released a report titled; “Tax competition in East Africa: A race to the bottom?” that said East African countries are competing against each other in providing tax incentives to little gain.
Particularly on Uganda, the report says the country’s revenue losses from tax incentives and exemptions – at 2% of GDP, as measured by African Development Bank – amounted to almost twice the entire health budget in 2008/09 financial year.
“Unless East African governments deepen and speed up their commitment to reduce tax incentives, the region may experience increasing tax competition…Tax competition makes it harder for countries to maintain higher tax rates, leading to ever-declining rates and revenues,” the report recommends
Coronel said it is even more prudent for Uganda to adopt tax reforms as the country is lagging behind regional peers in tax collections.
“Tax revenues in Uganda are about 12.5% of GDP (gross domestic product) while neighboring countries have revenues of 17 to more than 20% of GDP.”
“Income revenue, particularly tax revenue is still low by regional standards. There has to be some efforts to improve revenue tax collections,” she said.
