URA's upcoming tax exemptions in the next financial year stir concern

In the tax body's ministerial policy statement for the period, URA Commissioner General John Musinguzi revealed to the Finance Committee on Thursday 6, April, 2023 that URA will waive the two tax expenditures in the form of exemptions, rate reliefs, deferral, credits, and allowances.

Parliament reacts to the report

However, the amount indicated in the documents bothered the Finance Committee Chairperson Kiwanuka Keefa, who was also in the company of the Minister of State for Finance, Planning and Economic Development (General Duties), Henry Musasizi.

Kiwanuka said the Parliament will deliberate on the impact of tax exemptions because their impact is not well known yet.

During the presentation, the Industrial Division Member of Parliament in Mbale City, Karim Masaba expressed concern that URA is waiving up to two trillion in tax exemptions when the government is looking for one trillion to fund the Parish Development Model.

In the meantime, the Ministry of Finance has been asked to present a performance report of companies that are tax exempted.

Basil Bataringaya, the Kashari North County Representative in Mbarara District, wondered why the Ministry has not presented an analysis of these companies in order to inform the fiscal year budgeting process.

Assessment and impact of tax exemptions

To this inquiry, Musasizi pledged to provide the recommendations, saying that the Ministry of Finance has already developed a tax review expenditure framework where some tax exemptions are terminated while others are maintained upon the satisfactory performance of a given beneficiary company.

A 2019 study by the Southern and Eastern Africa Trade Information and Negotiations Institute (SEATINI) indicates that harmful tax incentives and exemptions in Uganda cost the country an estimated 1.420 trillion (FY 2017/18).

The report revealed the benefits of tax exemptions, especially from international trade tax and VAT-related exemptions, are low in terms of additional investment where societal costs are high.

The most harmful exemptions indicated in the report include, Deemed VAT, Government undertakings, MPs’ allowances, interest income of SACCOs and restrictions of URA enforcement, Environment levy, and exempt VAT supplies among others.