CSOs Support Parliament’s Move to Reject 5-year Income Tax Exemption for Bujagali Hydro Power Project

Following the debate in Parliament of Uganda over the government’s proposal to extend the income tax exemption for the Bujagali Hydro Power Project by 5 years, SEATINI Uganda, under the auspices of the Tax Justice Alliance, supported the Bill that allows section 21 (1) (ac) of the Income Tax Act, which exempts the income of the Bujagali Hydro Power Project until June 30, 2022, to expire. This was said during a press conference that was held on May 10th 2022.

Speaking to journalists during a CSO press conference, Ms Regina Navuga, Tax Analyst at SEATINI Uganda noted that the purpose of the amendment is to lower the average power rate of the Bujagali Hydro Power Project by 4.7 percent during the term, from US cents 10.62 per kilowatt-hour. She added that it appears that the objective was not achieved because the current peak tariff ranges between UGX 316/KWH for large industry consumers to 807/KWH for commercial consumers while the domestic peak tariff is UGX 748/KWH which are the highest tariff in the East African Region. According to the Tax Expenditures Report FY 2020/21, this exemption has cost the country UGX 3.67 Billion.

Ms Regina Navuga therefore recommended that before any consideration for the renewal of this exemption is done, there is need to conduct an audit to assess the impact of the Bujagali Hydro power Dam on the consumers prior to making any further extensions to minimize further revenue losses.

CSOs also backed the implementation of section 21(1)(aj) of the Income Tax Act, which exempts hospital facility developers’ income of at least $5 million for a period of at least six years from the date of commencement, this is similar to the Value-Added Act (Paragraph 1(rr) and represents a step towards tax harmonization. CSOs also suggested that this measure be implemented by Parliament.

Mr David Kizito, Program Officer at Transparency International Uganda on the other hand reiterated that in most cases, the waivers/exemptions affect the economy since the government borrows more money to finance its budget while the much-needed revenue is foregone in form of tax holidays/exemptions that are doled out to investors.

He added, “Uganda Vinci Coffee Company Limited, a private company contracted to market and export Uganda’s coffee, was recently revealed to be exempt from paying taxes such as income tax, Pay as You Earn, Excise Duty, Stamp Duty, VAT, Import Duty, and Corporate Income Tax as part of the controversial coffee processing agreement with the government.”

According to Henry Bazira, the Executive Director at Water Governance Institute, the government should examine the Withholding Tax imposed on people who sell non-commercial land vs those who sell commercial land. He emphasized, “We recommend that the person tax rate be cut to 10% and the corporate tax rate be increased to 12% by raising deductions to 60% in the Income Tax Amendment Bill 2022 under the 3rd schedule to restructure the rental tax regime”

Mr Francis Kabuye, the Head of Policy and Advocacy at the Federation for Small and Medium- Sized Enterprises (FSME) oppose the Minister’s involvement in the Uganda Revenue Authority’s board of directors and policy changes. More gender balance at URA is also recommended by CSO. The Board of URA should not have the authority to hire URA employees, but rather the internal structure should. This is under the Uganda Revenue Authority (Amendment) Bill 2022

As part of the annual Tax, CSOs under the Tax Justice Alliance submitted Alternative Tax Proposals to the Ministry of Finance, Planning and Economic Development. The Alliance is pleased to note that six of the Tax Bills adopted included;
• Amendment of schedule 2 (item 63) of the Stamp Duty Act to clarify that concerning and property made by any writing including a transfer from a holder to letters of administration or probate to a beneficiary an amount of 15,000 is charged

• Repeal of Section 22 (1) (ca) of the Income Tax Act to clearly provide for a capping of expenses for non-individuals. This creates fairness in rental taxation and an avenue for expanding the tax base