Gov’t to lose Ugx 4Trn in Tax Exemptions

The government expects to lose 4.038 trillion shillings through the various tax incentives given to corporations and individuals this financial year.

This would be an increase from the 3,609 trillion that the government forewent in the year 2023/2024, according to the Ministry of Finance, Planning, and Economic Development under the Tax Expenditure Framework (TEF).

A tax expenditure is defined as a deviation from a defined Uganda-specific benchmark tax system, which results in a reduction of the effective liability of the taxpayer and includes taxes paid by the government on behalf of a taxpayer. 

The ministry sees most of the foregone revenues being under the Income Tax Expenditure, amounting to 1.1309 Trillion Shillings, and while the Customs Tax Expenditure is most likely to amount to 1.3678 trillion.  Incentives under VAT and Excise Duty tax heads are expected to amount to losses worth 730.12 billion Shillings and 809.26 billion during the same year.   

Last year, the foregone tax amounted to 1.78 percent of GDP and 13 percent of the total revenues raised by the government.

Security agencies accounted for the lion’s share under personal income tax exemptions, amounting to 412.85 Billion Shillings. These include Police, UPDF, Prisons, ISO, ESO, Official employment income of a person employed in the Uganda Peoples’ Defence Forces, the Uganda Police Force, External Security Organisation, Internal Security Organisation, or the Uganda Prisons Service, other than a person employed in a civil capacity.

They were followed by exemptions on Members of Parliament and Parliament workers, whose wages and allowances, other than salary, saw the government forego 135.74 billion. Tax Expenditure under Corporate Income Tax (CIT) amounted to 253.94 Billion Shillings last year.

The standard CIT rate is 30 percent of chargeable business income, calculated as pre-tax profit minus allowable deductions plus non-allowable deductions. Notably, under CIT Tax Expenditure was the 99 billion awarded to Bujagali Energy Ltd under the exemption period 2017-2022, which was later extended to 2027.

Revenue foregone under VAT increased from 593 billion to 677 billion Shillings, representing a 14 percent rise over the five years, while trends in Revenue Foregone from Customs Duties doubled to 1,137 billion