Opposition Wants Inquiry into UGX 2.8 Trillion Lost in Tax Exemptions

The Opposition in parliament has recommended the constituting of a select committee to inquire into tax exemptions and expenditures before the approval of the annual national budget for the next financial year 2023-24 in April.

This is carried in a minority report authored by the Shadow Minister for Finance, Muhammad Muwanga Kivumbi, the Shadow Minister for Science Innovations and Technology Gorreth Namugga and Buikwe South MP Dr. Micheal Lulume Bayiga on the proposed budget framework paper for next financial year.

According to their minority report, the Opposition wants the select committee to have a mandate of three months to inquire into the matter and report back in April.

“Tax exemptions and related expenditures are a big cost to the government,” says the Butambala County MP Muwanga Kivumbi. “The government loses over 8 trillion Shillings annually in tax exemptions and related expenditures, a sample of a handful of tax exemption beneficiaries demonstrates the extent of the hemorrhage where the country loses over half a trillion.” 

The minority report reveals some of the companies that are exempted from paying taxes and these are Oil Palm Uganda Limited (Value Added Tax) 55.28 billion and Corporation tax of 189.7 billion, Roofings Rolling Mills Limited (Corporation tax) 15.71 billion, Uganda Post Limited (Value Added Tax) 5.2 billion and Pay as You Earn (PAYE) of 6.21 billion, Fine Spinners Uganda Limited (Stamp Duty) 239.5 million, the Commission of inquiry into the effectiveness of law policies and processes of land acquisition administration management and registration 2017 (PAYE) 13.65 billion and Withholding Tax 212.7 million.

The others are University of Kisubi (PAYE) 172.9 million, Finasi-lshu Construction Spv Limited (PAYE) 1.85 billion, and Withholding Tax 47.9 billion, International Specialized Hospital of Uganda Limited (PAYE) 1.78 billion and Withholding Tax 523.3 million.

The opposition suspects that the award of exemptions may be conduits for corruption.

“The big companies are exempted from taxes yet the small taxpayers are made to pay,” Kivumbi adds. “The small taxpayers desire a favorable tax regime and affordable credit. Unfortunately, these are less prioritized by the government.” 

He tabled the minority report before Parliament on Wednesday evening and Deputy Speaker Thomas Tayebwa deferred the debate to Tuesday next week.

In the report, the Opposition also demands that quarterly tax exemption reports are presented to the House as per Section 77 of the Public Finance Management Act, 2015.

Section 77 states that a person or an authority granted the power to exempt the payment or to vary any tax under an Act of Parliament, shall in each financial year, on or before the 30th September, the 31st of December, the 31st March and the 30th June, make a report on tax exemptions to Parliament.

The law requires that a report made shall indicate the person exempted from the payment of tax, the reasons for the exemption, the amount of tax foregone by the government and the benefits to the government from the exemption.

Recently, John Rujoki, the Uganda Revenue Authority -URA Commissioner General  revealed that 2.88 trillion Shillings in form of tax exemptions will be lost in the current financial year 2022/2023.

Documents before the Finance Committee indicate Agro-processing, charitable organizations, commerce and industry, farming association, SACCOs, tourism associations, trade unions, exporters of 80 percent of products, education and public character as some of the categories benefiting from tax exemptions.

Some of the taxpayers that have in the past been recommended for tax waivers by the government are Brookside Limited, St. Mary’s Hospital Lacor, UGACOF Limited, FINASI-ISHU Construction SPV Limited, Kuka (U) Limited, Uganda Broadcasting Corporation, Kams Contractors.

According to the government tax expenditure report released in October 2021, a total of 5 trillion in taxable revenue was forgone for exemptions and other incentives.

When asked by Finance Committee Chairperson, Keffa Kiwanuka about the government’s tax expenditure plan given the money lost, the acting Commissioner of Tax Policy in the Ministry of Finance, John Byaruhanga early this month said they have already adopted a Tax Expenditure Governance Framework and a Rationalization plan.

Tax expenditure means the lost revenue as a result of preferences extended by the government to a particular group of taxpayers.

“Consultations with His Excellence the President were concluded and we were given a green light to go ahead and do the analytical work that is going to inform the exact expenditures that are going to be adjusted,” Byaruhanga said then.

He added that whereas they have already identified areas that the Ministry wants to touch, they are carrying out an analysis to determine the execution of the adjustments of the tax exemptions that they already have on the radar.

The national budget for the next financial year 2023/2024 is projected at 49.98 Trillion Shillings, compared to 48.13 trillion for the current financial year 2022/2023.

The proposed budget will be partly financed through gross domestic revenue projected at 29.78 trillion, of which tax revenue is 27.77 trillion and Non-Tax revenue of 2.009 trillion. This represents a growth in revenue estimates of 4.23 trillion up from the 25.5 trillion projected revenues for the current financial year.

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