Government proposes tax relief for Aya, Bidco, and 13 others

The Finance Ministry is proposing to grant tax relief to 15 companies and organisations in 2017/18, according to a presentation made by the minister of state for planning, David Bahati, before Parliament’s budget committee.

The 15 entities include both new and established manufacturers, Christian charities, a real estate company, and food processors.

The list has two iron and steel companies – Roofings Rolling Mills Limited, and Steel and Tube Industries – a pharma company, Cipla Quality Chemical Industries Limited, and two food processors, Vinci Coffee Company Ltd and Bidco Uganda Limited.

Other companies on the list are: Southern Range Nyanza Industries, Fine Spinners Limited, Guangzhou Dongsong Energy Group (Uganda) Co., Ltd – which is implementing the Sukulu Phosphate Project, Bujagali Energy Limited, National Cement Company Limited, and Aya Investments (Uganda) Limited.

The Christian charities are International Cooperation and Development, an Italian NGO operating in Karamoja, AVSI Foundation, Emmaus Foundation, and All Nations Christian Care.

The constitution empowers the finance minister to waive or vary a tax imposed by the law. In addition, the finance minister can directly pay tax for companies and NGOs that have exemption clauses in their agreements. This is usually done to stimulate growth in a particular sector, assist the growth of key companies, and address regional imbalances.

For example, as detailed in the Auditor General’s report on government and statutory bodies for 2015/16, in 2003 the government and Bidco agreed that the Treasury would pay VAT on the produce from Bidco’s oil palm project in Kalangala for 11 years after giving the company 26,500 hectares of land. However, Bidco would refund the tax paid by the government with interest over an eight-year period in eight instalments, starting in the 12th year.

But the practice is not without critics, least of all the Auditor General. The Bidco agreement referred to earlier went over the stipulated period after the government failed to meet its end of the bargain. The report noted that 13 years later, Bidco “has not started paying back the taxes with accrued interest that government has been paying on its behalf.”

“Because of government’s failure to provide the balance of the required land, the Ministry has continued to settle all tax obligations on behalf of BIDCO. In the year under review, the Ministry paid a total of UGX.12,364,819,655 to cater for the agreed obligations,” the report said.

It adds: “There is a risk that the funds government has paid VAT on behalf of BIDCO since the date of signing the agreement may not be recovered. There is also a risk that government will continue to lose more funds to BIDCO in form of tax payments.”

The report also found issue with government’s tax support to Aya Investments. The company “appears to have been given an open-ended tax holiday (through annual renewals) without due consideration to the associated risks of projects which overrun timelines set in their business plans,” the report said.

The Auditor General said the ministry has “continued to settle all tax obligations for AYA since 2013 when the MoU was signed,” and there were no signs it was about to stop supporting the investor soon.

“There is a risk that the originally envisaged benefits like employment opportunities when the hotel becomes operational and resulting taxes when the business starts filing tax returns may not be achieved,” the report adds.