The World Bank told Uganda’s government to stop giving unnecessary tax exemption because they are eroding a huge tax base that would otherwise have huge returns.
A study conducted by George Town University, presented during Economic Growth Forum in Uganda last year indicated tax incentives cost Ugandan taxpayers between about $8.9 billion and about $12.9 billion or 2 per cent of GDP annually.
The World Bank said this, has denied Uganda an opportunity to increase the country’s tax ratio to the GDP, which remains low compared to other countries in sub-Saharan Africa and East Africa.
Speaking in Kampala on Wednesday, the World Bank senior country economist, Mr Richard Walker said Uganda’s fiscal policy is constrained by low revenues and slow execution of capital spending.
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“At 12.6 per cent of GDP, it is far below government’s medium-term revenue target and compared to Rwanda and Kenya –among others, this is a constraint on government’s ability to provide services,” he said.
He added that it will help contain the rise in public debt, ensure stronger social compact in the use of revenues and provision of services.
In 2016/17 estimates indicate that revenue foregone due to exemptions from all tax sources were at between 4.5 and 5 per cent of GDP yet there is little evidence to show that such exemptions encourage greater investment according to the World Bank.
Mr Walker said that the Ugandan government must be applauded for trying to expand the tax base through the introduction of a number of domestic revenue mobilization strategies.
Uganda’s public debt remains sustainable but vulnerability, he noted and said it might lead to debt distress if it continues to grow.
Given the slowdown in growth, delays in oil production, and continued non-concessional borrowing, he warned that the risk to debt sustainability is real.
From 2014 Uganda’s public debt has grown from $7.6 billion to more than $13 billion in 2019 and this year it is expected to grow further to $14 billion.