One clause in the production sharing agreement signed on behalf of the Republic of Uganda by a yet to be known Minister and Tullow Oil after the sale of interests to CNOOC and Total is the genesis of the multifaceted problem Uganda is currently facing known as the six billion handshake. This revelation was made by the Committee of Commissions, Statutory Authorities and State Enterprises (COSASE) that is currently probing the circumstances under which 42 government officials received emoluments worth UGX 600 Billion.
The clause stipulates; ‘the assignment or transfer of an interest under this agreement and any related exploration or production licence shall not be subject to any tax, fee or other impost or fee levied either on the assignor or assignee in respect there off’ exempted Tullow from paying Capital Gains Tax accrued from the transaction Uganda’s tax collection body the Uganda Revenue Authority (URA).
The debacle saw the Ugandan tax payer lose USD 157 Million in revenues. Consequently, COSASE has committed time and money (which, by the way, it’s fast running out of) to try and decipher the intricacies pertaining to this foul transaction. This is just one of the few cases that have warranted the Speaker of Parliament to institute special committees to get to the bottom of a range of elite corruption cases such as the UMEME, NSSF, and SGR probes are a testament to this assertion.
Ugandans have been dealt a bad hand for a long time now, with the government and its representatives making decisions that are clearly not in the best interests of Ugandans. From inflated contract prices, tax exemptions, tax holidays to dubious concession deals so sensitive that confidentiality clauses have to be signed in the guise of investment and Production Sharing Agreements.
Tax exemptions are an archaic and insidious way of attracting investment to developing countries especially when such countries already have favourable terms of investment like the ever growing markets and factors of production like cheap labor, cheap land with only the element of capital missing. Entrepreneurial ability is in abundance in Uganda, seeing as the country has been named the most entrepreneurial countries in the world, before. So why then, does the government feel the urge to provide such incentives that have worked towards the loss of revenue by Uganda?
Contrary, to the government belief, research has asserted that good infrastructure, political stability and predictable macro-economic policies are more likely to attract foreign investment as opposed to tax exemptions. Uganda loses about UGX 1.2 trillion annually, a report titled ‘Still Racing towards the Bottom? Corporate tax incentives in East Africa noted which is enough to fund Uganda’s Health Sector for FY 2017/18 which stands at UGX 1.285 trillion according to the budget framework paper. To add insult to injury, the Minister of State for Finance, Planning Hon David Bahati, laid supplementary schedule 1 for FY 2016/17 to the tune of UGX 255.7 billion, of this amount UGX 77.2 billion (more than the budget allocated to Uganda’s entire ICT sector, UGX 55 Billion for 2016/17) being payment to URA for tax exemptions to private, mostly foreign companies.
Since 2006 Uganda has paid UGX 198 Billion in tax exemptions through supplementary budget only, I can only imagine the amount funded directly from the overall budget. Please bear in mind the prerequisites for any supplementary budget to be passed according to the Public Finance Management Act of 2015. The Act dictates that they must be unforeseeable and can’t be virements. Uganda’s national budgets have been in deficits for President Museveni’s entire administration with debt (both domestic and external) making up for the balances. Is it illogical to think these monies would create great impact for some sectors like health and ICT whose entire budgets are equivalent to this revenue loss?
Members of Parliament have incessantly agitated for thorough scrutiny of these deals but the pleas have fallen on deaf ears. The irony of the matter is that after government officials or private individuals have rolled in the mud, Parliament is expected to clean up the mess as is in the billion handshake matter. Ordinary Ugandans too, have petitioned that things ought to change, policies that are pro-poor are needed.
Largely, Uganda is a poor country with a sizeable number living below the poverty line and barely affording social amenities. We just can’t afford to pawn our citizens at the whims of privileged political barracuda.