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Ugandan Parliament Tightens Qualifications for Tax Incentives

Investors seeking to enjoy tax incentives will have to meet tighter requirements, MPs have resolved.

During consideration of the Stamp Duty (Amendment) Bill 2020, MPs have decided to increase the threshold for those seeking to benefit from incentives to employ 70 per cent of Ugandans, who should also collectively earn 70 per cent of the particular company’s wage bill.

“A percentage rate of 70 per cent citizens be used to replace the current number of 100 citizens; Citizens employed by the company should earn 70 per cent of the total salary budget for a particular financial year,” proposed MP Henry Musasizi, the Chairperson of the Committee on Finance.

MPs also lifted stamp duty on mortgages, which MPs argued was crippling and unfair.

Currently, investors who are citizens of Uganda or the East African Community who inject a minimum of US$1 million enjoy incentives, while foreigners reap the coveted benefit if they inject $10 million.

In Uganda, tax incentives are granted to mainly foreign investors targeting sectors government considers strategic to the growth of the economy.

For example, sectors such as tourism, construction and those setting businesses in the industrial parks among others.

On the other hand, Foreign Direct Investments is expected to provide jobs and contribute to future revenues in addition to technological and skills development.

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However, when extravagantly and arbitrarily awarded, such tax incentives could be costly to the country in terms of revenues foregone.

Besides, there is a debate as to whether tax incentives are a major component that foreign investors consider when deciding on an investment destination. Other factors such as market characteristics, relative production costs, political stability and resource availability are preferred.

In FY 2017/18 alone, the government of Uganda is estimated to have lost Shs 1,402.29 billion in revenue foregone in various tax incentives and exemptions granted to individuals.

These were captured under VAT exempt supplies, VAT zero rated supplies, Deemed VAT, international trade tax exemptions, Savings and Credit Cooperative Organizations (SACCOs), Government undertakings, policy reversals, allowances for members of parliament, and Restrictions to URA.

Locals

Meanwhile, MPs further incentivized local investors by lowering their threshold for benefitting from the tax incentive to $300,000 and $100,000 for upcountry investments.

MPs say the additional measures are intended to make a transition to total 100 per cent operations being run by local citizens.

MP Syda Bbumba (NRM, Nakaseke North) said additionally, the companies must have a clear policy aimed at training locals to eventually take over the operations entirely.

“These people must have a programme for training locals because eventually these local people must take over,” she said.

Those applying for professional certificates will now part with Shs100, 000 a measure the Minister says will increase on the revenue basket.

Finance Minister, Hon Matia Kasaija has also submitted several corrections to the budget, technically referred to as corrigenda to the budget estimates for financial year 2020/2021.

Most of the errors were either over or under-allocation, which the corrigenda has sought to redistribute to other votes.

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