Prime
Govt loses Shs12 trillion in tax exemptions in five years
In the five years to June 2023, government has foregone an annual average of Shs2.4 trillion. Photo / Edgar R Batte
What you need to know:
- In the five years to June 2023, government has been foregoing an average of Shs2.4 trillion annually due to tax expenditure
Tax incentives cost government at least Shs12.2 trillion in the five years to June 2023, according to the Ministry of Finance 2022/23 Tax Expenditure Report.
The report, which highlights foregone taxes in form of exemptions, rate reliefs, allowances, deferrals, and credits, shows that in the five years, government has foregone an average of Shs2.4 trillion annually, equivalent to 1.59 percent of gross domestic product.
The Shs2.4 trillion, the report notes, is 12.5 percent of the Shs23.7 trillion total tax collected in the 2022/23 financial year.
Foregone revenue is largely due to exemptions under value-added tax, excise duty, income tax, and customs duty.
Value-added tax, according to the report, forms the largest share of foregone revenue, which during the year to June 2023, rose to Shs992.2b - equivalent to 0.54 percent of gross domestic product - from Shs628b in the 2018/19 financial year, accounting for 33.3 percent of the total revenue foregone.
The increase was largely due to a surge in tax expenditure on allowances, which over the last five years, have grown by 60.6 percent, increasing from Shs449.3b in the 2018/19 financial year to Shs740.9b by June 2023.
Allowances account for at least 75 percent of foregone tax revenue under value-added tax.
The report further indicates that exemptions under corporate income tax saw government forego Shs350.6b, which was an increase from Shs168.5b recorded in the 2018/19 financial year due to rate relief on payments for the supply of technical and other services provided directly for EACOP project.
Revenue foregone under customs duty increased from Shs560b to Shs794b due to an increase in rate reliefs offered via the Stay of Application and Duty Remission schemes, while foregone revenue under excise duty increased to Shs376b from Shs320b.
Government has through a number of reports justified tax expenditures, noting that they support investment in the local economy and manufacturing and job creation, among others.
Through reporting tax expenditures, government, through the Ministry of Finance, seeks to improve transparency in the usage of public funds, highlight the importance of tax expenditure to government and serve as a basis for making informed policy choices.
However, experts, including the Auditor General, have previously questioned why government continues to give tax incentives to companies that do not meet required standards.
In February, the Auditor General, in a June 2023 report, noted that during the 2022/23 financial year, 22 companies out of 36 that benefit from tax incentives, were not fully meeting the desirable employment levels of nationals, yet they were benefiting from tax breaks worth Shs1.4 trillion.
Government requires beneficiary companies to have a workforce composed of more than 50 percent of Ugandans.
The Auditor General indicated that government had waived Shs1.293 trillion under the gazette by Parliament, in addition to direct waivers by the Minister of Finance of Shs118.5b and exemptions by Uganda Revenue Authority Commissioner General worth Shs5.5b.
