Government Rebuked on Supplementary Budgets and Tax Incentives

‎Uganda government’s local development partners, also knowns as donors, have condemned the continued abuse of supplementary budgeting and tax incentives, saying the undermine the governments development agenda.‎‎

Led by the World Bank, the community noted that Uganda is currently spending one third of its tax revenues on interest payment, a ratio which is among the highest in the world, and leaves not room for social services and infrastructure financing.

‎‎This was in response to the Budget Strategy for financial year 2027/28 as presented by the Minister for Finance, Planning and Economic Development, Henry Musasizi, with enhanced domestic revenue mobilisation, prudent financial management and expenditure rationalisation on top of the agenda.‎‎

The Local Development Partners Group consists of lenders like World Bank, IMF, European Union Countries and USAID and UN agencies.‎‎

In his speech, Musasizi mentioned further budget reforms in the critical areas of procurement, land acquisition, contract negotiation, project implementation readiness to improve return on investment, strict and timely monitoring of project implementation, and enforcement of sanctions for non-performance and fraud as critical for realising the budget strategy.

‎‎The strategy prioritises enforcement of the Charter for Budget Discipline and Accountability, to improve performance management and accountability for results. 

“This is meant to strengthen budget discipline, credibility and accountability, improve allocative efficiency and strengthen internal controls and audit systems,” Musasizi said.‎‎

The Charter’s non-negotiable rules include not committing Government without a budget; no supplementary expenditure “unless for exceptional circumstances”; no accumulation of domestic arrears; no recruitment of staff without wage allocation; and ‎no starting implementation of projects when not ready.‎‎

In their statement, the development partners welcome government commitment to clipping budget deficit (the need to borrow to find the budget) which is essential to keep public debt on a sustainable debt path while financial pressing infrastructure and social needs.‎‎ However, they say this requires increased revenue and budget discipline, and higher domestic revenue mobilisation as Uganda currently lags behind regional neighbours with just about 13.5 percent of GDP.

‎‎While condemning the current tax incentives regime, the development partners say the government cannot be bidding to increase domestic revenues while maintaining high tax expenditure levels and tax holidays purportedly to attract foreign investments.

‎‎”You want to raise revenues but you are deliberately fencing out some parts of the tax base – it is like trying to fight while your hands are tied behind your back,” the statement says.

‎‎According to them, the government motive of tax incentives to attract investment to a landlocked country with weak infrastructure, is weak.‎‎ “Instead, the government should invest in infrastructure to make Uganda more land-linked.”‎‎

They say that incentives must deliver economic value, as the ministry says, but that cost-based incentives can be useful, such as investment allowances and accelerated depreciation, “but income tax holidays are a windfall which reward the activities which are the most profitable in the first place.”

‎‎This government system has also been blamed for the complaints that compliant foreign firms which do not get incentives are always being singled out by Uganda Revenue Authority for special attention.‎‎

They call for a leveled playing field for all businesses which will help attract Foreign Direct Investment.‎‎

The community also welcomed the government focus on relying more on grant and concessional financing as much as possible, but warned that the available funding should be protected from lapsing especially due to low disbursement.‎‎

They say ensuring efficient project implementation and early dialogue with financiers in case of delays is important.

The minister admitted that the portfolio of concessional loans has a very low absorption rate of about 45.5 percent, leaving about 5.51 billion dollars undisbursed by end December 2025.

‎‎He vowed that Government would undertake a “portfolio clean-up”; accelerate land acquisition; procurement and counterpart funding for viable projects; restructure or cancel persistently non-performing loans; and refrain from contracting new loans for projects that have not met minimum readiness requirements.‎‎

On oil revenues, the development partners welcome government commitment to prudent management. ‎‎‎

The Charter for Fiscal Responsibility provides that a maximum of oil revenue worth 0.8 percent of the preceding year’s non-oil GDP outturn shall be transferred to the Uganda Consolidated Fund to finance the National Budget for development purposes. 

For example, if for the current year GDP is 70 billion dollars without oil, next year 0.8 percent of it (560 million dollars) will be transferred from the oil revenues to the consolidated fund.

‎‎The ‎remainder of the oil revenues shall be transferred to the Petroleum ‎revenue Investment Reserve in accordance with the Public Finance Management Act.

‎”Given the finite nature of this resource, it will be critical that oil revenue is used to improve productivity and competitiveness of the non-oil sectors of the economy,” Minister Musasizi said.

‎‎The partners, in their statement, say before first oil, the government should complete the remaining elements of the oil revenue management framework, including clear operations rules for the Petroleum Revenue Investment Reserve, transparent reporting arrangements and a strong independent oversight mechanism.‎‎

“Oil revenues need to be managed transparently, used to support macroeconomic stability, promote development priorities and preserve benefits for future generations.”‎‎

On budget discipline, they commended the government commitments through the Charter for Fiscal Responsibility, and the reduction the budget deficit. ‎

However, they condemned the continued supplementary budgeting even where they breech the rules, weakened expenditure controls and the reduced budget credibility, with much of the budgets not followed throughout the budget year. This, according to them, leads to very high interest costs.

‎‎”Supplementary Budgets should be reserved for exceptional expenditures, like the minister says, but we add that it should be reserved for the three-year unforeseen, unavoidable and unabsorbable expenditures,” the statement says, adding that some expenditures in supplementary budgets are not worth being there.‎‎

“In this regard, it is hard to understand why some interest payments are included in supplementary budgets,” they add.‎

‎On his part, Julius Mukunda, CEO of Civil Society Budget Advocacy Group, called for the strengthening of URA’s operational capacity if it is to adequately increase domestic revenue mobilisation.