Over sh160 billion lost in incentives – URA Report

Kampala, Uganda | THE INDEPENDENT |  Uganda Revenue Authority (URA) has disclosed a shortfall of over sh160 billion in corporate income taxes. This shortfall is attributed to the various tax incentives issued by the government to investors with the aim of stimulating investment.

This revelation stemmed from collaborative research conducted by URA’s research department and the United Nations University (UNU-Wider) between September 2022 and September 2023.

Nicholas Musoke, URA’s research supervisor and the lead investigator, underscored that the study focused on companies incentivized to export a substantial portion of their products, those operating in industrial and exporting zones, and those engaged in agro-processing.

The research aimed to evaluate the cost-benefit impact of these incentives on the national economy. The findings unveiled that these incentivized companies, across examined categories, accounted for an approximate loss of 160 billion shillings in unreported returns to the tax authority.

Additionally, the research highlighted a surge in investment and employment by incentivized firms, except within the agro-processing sector. However, the report noted that these incentives did not directly influence the profitability of these entities. Paul Lakum, a senior researcher at the Economic Policy Research Center (EPRC), emphasized that while the research was limited in scale, it highlighted concerning trends, particularly within agro-processing, warranting further comprehensive analysis.

Lakum advocated for a more targeted approach to incentives and enhanced revenue collection strategies. He proposed revisiting taxable thresholds, refining incentive scopes, and emphasizing comprehensive compliance measures, stressing the need for a nuanced strategy to optimize incentive impact while fortifying revenue collection mechanisms.

“The compliance continuum, from tax education, failing audits, enforcement, as well as resolving tax disputes. Then the tax policy should review the taxable threshold, which is too low; we should limit the scope of incentives but also target them more carefully. We should also look at the structure of the economy, which is more than 70 percent consumption,” Lakum explained.

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