Government paid Shs77 billion to Uganda Revenue Authority (URA) for seven private companies as tax waivers but has now failed to back up the payments with agreements, a new report has revealed.
In the 2016/17 financial year, Shs29 billion was paid to URA on behalf of Quality Chemicals (corporation tax), Shs25 billion for Uganda Electricity Generation Company Ltd (UEGCL)(stamp duty), Shs6 billion for Southern Range Nyanza (import taxes) and Shs5 billion for BIDCO (corporation tax).
The government then paid Shs3 billion for Aya Investments (import taxes) and Shs1.5 billion for Steel and Tube industries (corporation tax).
But an investigation by Parliament’s Budget Committee has discovered that the agreements that were initiated between the government and different companies are either not grounded in the law or lack supporting evidence and ruled that the expenditures be treated as a loss.
The other option is URA recovering the money from the faulted companies.
Only UEGCL and Uganda Electricity Transmission Company Ltd (UETCL) were given a clean bill of health.
For Aya Investments, a July 29, 2015 letter by Finance minister Matia Kasaija extending the period of exemption of payment of taxes and duties of hotel equipment for the Hilton Hotel project to December 2015 was the only evidence tabled.
For Southern Range Nyanza, the government only tabled a letter by the Finance minister confirming a decision by government to pay Value Added Tax (VAT) and import duty on raw materials for textile manufacturers, evidence that the committee ruled did “not pass the (legal) test”.
No supporting documents were tabled to back the tax waiver granted to Steel and Tube Ltd, a firm that is among the 66 companies and individuals that are seeking a total of Shs1.3 trillion in bailout from the government.
For BIDCO, the committee ruled an agreement signed between the government and BIDCO Oil Refineries Ltd to support a palm oil project on Kalangala Islands did not follow procedures.
“Article 5 of the agreement awards a range of incentives to BIDCO, including corporation tax for 25 years from the first year of the project activities. The circumstances and procedures followed in granting the exemption are not legally supported,” recommends the report.
“The committee declines approval to the tax waivers of BIDCO, Quality Chemicals, Aya Investments, Steel and Tubes and Southern Range Nyanza amounting to Shs47 billion. These expenditures have already been incurred and therefore, it should be treated as a loss to government,” reads the report.
Defending the tax waivers, State minister for Finance (Planning) David Bahati, told Parliament the government is hard-pressed by investors who propose to invest in the country on their own terms.
“The point is that we are in a situation where we do not have our own money to invest in an area and we get investors who come in with their own terms,” Mr Bahati said.
For Quality Chemicals Ltd, a May 31, 2010 letter communicating a government decision to pay on behalf of the company taxes chargeable on their business income for 10 years was the only evidence of a waiver tabled.
Mr Bahati responded: “Quality Chemicals, at a time when our people were at a risk of losing lives, we entered into agreement to reduce the cost of ARVs.”
The government will either table definitive evidence backing the waivers or have URA recover the money from the companies.