A recent report by Auditor General John Muwanga highlights concerns about the efficacy of tax incentives granted by the government to companies during the 2022/23 financial year. Out of the 36 companies receiving tax breaks totaling Shs1.4 trillion, 22 failed to meet the required employment levels for Ugandans, as stipulated by government regulations.
Government guidelines mandate that beneficiary companies must employ over 50 percent Ugandan workers in exchange for tax breaks. The Auditor General’s report indicates that despite the significant amount of Shs1.4 trillion in tax incentives, some companies did not fulfill the employment criteria.
Tax breaks are intended to encourage companies to expand their workforce, primarily comprising Ugandans. However, the report reveals that the employment targets were not met by a substantial number of beneficiary firms.
The report breaks down the waivers, revealing that Shs1.293 trillion was waived under parliamentary gazette, with an additional Shs118.5 billion in direct waivers by the Minister of Finance and Shs5.5 billion in exemptions by the Uganda Revenue Authority Commissioner General. The Auditor General emphasizes that the foregone revenue represents a loss for the government.
Furthermore, the report indicates that several companies did not achieve the stipulated outputs, while some incentives remained unutilized, contrary to the government’s intention in granting tax incentives.
The Auditor General recommends that the government explore alternative measures to create a conducive business environment, such as subsidizing electricity, ensuring easy access to land, and guaranteeing an affordable and reliable supply of raw materials. These measures, he suggests, have the potential to attract business and industrialization without incurring an enormous cost to individual businesses.