Po­lit­i­cal Baracuda: Ugan­da’s real prob­lem

By: Winnie Watera

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 UMEMENSSF, 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.