By Deogratius Wamala
Uganda is faced with a difficult task of meeting ambitious revenue targets while juggling the complex al- lure of tax incentives it uses to attract investments to drive its economic growth and employment of its young population.
In order to attract significant foreign direct investment,the country introduced 10-year tax exemptions for businesses located in industrial parks. However, economists are concerned that these incentives may have the opposite effect of what the country intended, as they “uplift firms more than the country itself.” Uganda’s economic narrative has been marked by persistent budgetary deficits, affecting essential public services, public servant salaries, and the stability of the national currency.
The urgency to break free from this cycle has forced the country to turn its attention towards its taxman, with high revenue targets. The broader objective is to reduce the nation’s dependence on debt, a phenomenon that has increasingly strained the country’s economic resilience.
For instance,in the 2022/2023 financial year (FY), the government’s fiscal opera- tions resulted in a deficit of Shs10.1t or 5.5 percent of gross domestic product (GDP). While this surpassed initial projections, it is a marked improvement from 7.4 percent recorded in FY2021/2022, underscoring the government’s stead- fast commitment to fiscal consolidation.
“This deficit was strategically financed through a mix of domestic and external borrowing. As a result, the public debt stock rose from $20.99b (Shs79.2t) in June 2022 to $23.66b (Shs89.3t) by June 2023,” national treasury data shows.
The main concern is that some of Uganda’s largest companies are allegedly abusing tax breaks, particularly tax holidays and accelerated depreciation tax incentives for firms operating more than 50km from Kampala. Some of these entities are suspected of leveraging tax havens where they are domiciled and also exploiting available tax incentives to manipulate their operations positively. More details in today’s copy of the Sunday Monitor.