Investors in extractive sector don’t need incentives- tax expert

But government technocrats disagree saying there are objectives in doing so

Kampala, Uganda | ISAAC KHISA | Investments in the extractive sector has become the next big thing in the East African region but there are concerns that the governments could extend huge tax incentives like they have  done in other sectors in the past, leading to huge revenue losses.

Viola Tarus, a Policy Advisor, Tax and Extractives with IISD’s Economic Law and Policy Program, working on the Intergovernmental Forum (IGF) on Mining, Minerals, Metals and Sustainable Development project, said that investors in the extractive sector do not need incentives to set up their investments in the region.

Taurus said so during a 2-hour webinar organised by SEATINI Uganda and the Stop the Bleeding (STB) Campaign themed ‘Enhancing Domestic Revenue through Curbing Harmful Tax Incentives in the East African Community,’ on Aug. 13.

She said investments in the extractive sector are very specific and less mobile, and that such investors with huge incentives such as tax holidays usually strive to ramp up production and recoup their investment within the shortest time possible ahead of expiry of their licenses.

“The extractive sector is usually capital intensive and you cannot claim that the incentives will create jobs to the local population,” She said and added “Instead, investors in this sector are usually concerned with the availability of infrastructure, governance, peace and stability.”

Tarus said studies carried out in many African countries including Ivory Coast have proof that incentives aren’t the major factors to attract investors.

Tarus’ suggestions comes at the time gold has become the leading export commodity a head of coffee and tourism that have dominated Uganda’s export commodities for many year.

This also coincides with the region’s planned investments in various mineral developments including oil and gas that Uganda hopes to start production in 2024.

However, Moses Kaggwa, Director Economic Affairs at the Ministry of Finance, Planning and Economic Development said the reasons for giving incentives to investors vary and usually have an objective that includes job creation.

“In early 2000s, we decided to give beer companies some special treatment in terms of Excise Duty so that they can buy local raw materials for their beer production.  Currently, most of these beer companies are buying materials for making beers from our farmers, earning some incomes,” he said.

Kaggwa reiterated that not all tax incentives are bad for any country as they strive to develop and improve the economic wellbeing of the population.

But Balozi Morwa from Action Aid Tanzania, says the east African countries need to co-jointly invest in the extractive sector with the private sector so that the local population can fully benefit from their resources and minimize on revenue losses.

He said there’s also need for the Low Developed Countries to set a minimum and maximum level of incentives to investors to minimize on tax evasion and avoidance.

Currently, all the six EAC partner states – Burundi, Kenya, Tanzania, Rwanda, South Sudan, and Uganda – are providing various preferential tax treatments such as tax exemptions, tax holidays, credits, investment allowances, preferential tax rates and import tariffs, and deferral of tax liability, a move civil society organizations says is leading to huge loss of revenue at the time tax to GDP ratio remains low.