The World Bank warns Uganda

The World Bank warns that Uganda's generous tax exemptions and weak income tax enforcement for the wealthy are undermining the country's revenue base and making the government increasingly dependent on taxes that hit ordinary consumers hardest. In its latest Uganda Economic Update, the World Bank paints a clear picture of the imbalance: A handful of individuals and businesses enjoy comprehensive tax exemptions, while the bulk of the tax burden falls on citizens through consumption taxes such as value-added tax and excise duties. There is: A ten-year income tax holiday for developers and operators of industrial parks or free trade zones, with minimum investment limits for foreigners ($50 million) and citizens ($10 million). Tax relief and exemptions for agricultural machinery, inputs, raw materials, and cooperatives to support the agricultural sector. Zero-rated or VAT-free taxation for industries such as energy, aviation, insurance, and pharmaceutical production, as well as exemptions for imports from these sectors. Specific sector incentives in manufacturing, agro-processing, logistics, IT, and technical training, some of which require minimum investment thresholds. Exemptions for income from export activities, cooperatives, and certain non-profit or professional organizations. While these incentives aim to boost domestic investment and economic activity, results in attracting significant foreign direct investment (FDI) have been demonstrably mixed, with challenges in the administration and effectiveness of some exemptions. Uganda also plans to streamline tax exemptions to eliminate inefficient exemptions that do not promote business growth. In summary, Uganda's tax exemptions are extensive and designed to support key sectors such as agriculture, manufacturing, energy, and exports, with a focus on attracting investment, although their effectiveness in attracting FDI remains controversial. Uganda's tax system is broad on paper; It includes corporate and personal income taxes, value-added tax, consumption taxes, and a common external tariff, but in practice, it is narrowly defined. The tax-to-GDP ratio is between 12 and 14 percent and remains one of the lowest in East Africa, well below the regional average of nearly 18 percent. According to the Ministry of Finance's 2024 Tax Expenditure Report, the government lost over 1.6 trillion shillings in tax exemptions in just one year. Members of Parliament alone accounted for 638.6 billion shillings, while the security agencies received 965.65 billion shillings and the judiciary another 30.34 billion shillings. For a country struggling to meet its social and infrastructure obligations, these losses are devastating. In the 2023/2024 fiscal year, the Uganda Revenue Authority (URA) collected 27.7 trillion shillings, missing its target by almost 1.9 trillion shillings. @https://observer.ug/business/world-bank-sounds-alarm-on-ugandas-costly-tax-exemptions/