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African Development Bank Survey Report Faults Uganda on Tax Breaks

Uganda’s tax incentives system, perennially shrouded in controversy, is in the spotlight again, as it emerges that the country lost close to $2 million in dubious stamp duty waivers given to private companies between 2005 and 2011.

Expert estimates put total losses at more than $1 billion over the same period, going by the African Development Bank survey that established that in the 2009/2010 financial year alone, Uganda lost at least $272 million in such waivers and other incentives.

The EastAfrican has learnt that these tax breaks are routinely awarded at the behest of well-connected politicians and business persons who arm-twist the Ministry of Finance to bypass established procedures including tabling them before parliament.

“When you have an exemption, it is gazetted based on the Finance Act. For it to be implemented, the minister raises a Finance Bill giving details of the tax exemption. It is established practice for finance ministers to boost a sector through tax exemptions,” said Gerald Sendaula, former minister of finance and current board chairman of the Uganda Revenue Authority.

While the Stamps Act gives the finance minister powers to reduce or grant tax exemption only under compelling situations, it is a constitutional requirement that they be presented during the budget speech, after which parliament amends the affected laws to cater for the tax waived in the subsequent financial year.

Apparently, successive finance ministers exploited loopholes in the laws governing taxation to hand out the waivers.

“We should not have given them blanket powers to waive taxes. They are abusing these powers; we need an amendment to the Stamp Duty Act to remove some powers, so that if the minister is to exercise them, he has to explain why,” said legislator Abdu Katuntu, who is the shadow attorney general.

The accused

A quick look at the documents that exempted the named companies from stamp duty shows that former finance ministers Dr Ezra Suruma and Syda Bbumba as well as state minister Fred Jachan Omach signed off these waivers.

In October 2008, Mr Omach waived stamp duty tax in favour of Barclays Bank Uganda Ltd, when it had raised its share capital from $1.6 million to $24.2 million. Without the exemption, URA would have collected $121,131 in stamp duty taxes off this transaction, charged at 0.5 per cent. This was during the time Dr Suruma was finance minister, but he did not mention this waiver in his 2008/2009 budget speech.

Officials from both the Finance Ministry and Barclays Bank declined to explain when contacted for comment. URA was equally cagey, referring this newspaper to the beneficiaries or the ministry.

“Truly, the best people to respond to this query are the Ministry of Finance who make such policy directives,” said Sarah Birungi Banage, URA’s Assistant Commissioner for Public & Corporate Affairs.

“At URA, our role remains collection of revenue in accordance with policy directives. So we are not in a position to know the thinking behind the exemptions you quote,” said added.
Earlier, however, Dr Suruma had waived stamp duty taxes chargeable on several companies including Munyonyo Commonwealth Resort Ltd., exempted in respect of increase in its share capital from $4,000 to $29.5 million in September 2007. This transaction would have raised $147,481 in taxes.

That same month, Dr Suruma also exempted AYA, a company that is building a hotel in the city, from paying taxes on “debentures on all the movable property and the undertaking of the borrower both present and future including its uncalled capital as security for a loan of $41.5 million from Industrial Development Corporation of South Africa.” From this transaction, URA would have collected $201,943 in taxes.

In addition to this waiver AYA, which acquired public land without paying a cent, like other hotels, has been enjoying government’s blanket waiver on construction material since 2006 to date.

On top of that, Dr Suruma also exempted Quality Chemical Industries Ltd from paying stamp duty in respect of property used as security for a $4 million loan from Barclays Bank, a transaction that would have fetched $19,500 in taxes.

Last year, former finance minister Syda Bbumba exempted Roofings Rolling Mills from paying stamp duty fee in respect of a Stanbic Bank loan and another from International Finance Corporation, for neither of which were the figures stated. Overall, she waived $1.255 million’s worth of taxes that year.

Not new

Earlier in 2005, electricity distribution firm Umeme Uganda did not part with a coin as it acquired properties and assets it leased from the Uganda Electricity Distribution Company. The utility firm leased six properties in the city for the 20 years that its concession runs.

But these tax exemption controversies are not new in Uganda. In 2006, URA and Meera Investments went to court over a tax arrears dispute involving Ush36 billion ($14.2 million). Apparently, the Uganda Investment Authority had offered Meera Investments a number of incentives, but URA contested some of the details on the grounds that the company had reached a point where it no longer qualified for tax holiday. The case was settled out of court in favour of Meera.

A popular view even within Ministry of Finance circles is that waivers should be done by a committee and the list of beneficiaries published because the status quo lacks transparency, is open to abuse and serves to promote unhealthy business competition, with the ultimate loser being the taxpayer.

The East African Newspaper

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