The government of Uganda’s initiative to conduct a comprehensive study to evaluate the actual costs and benefits of tax exemptions across the entire economy will provide a complete understanding of tax exemptions impact on economic activity, revenue generation, and overall fiscal health in the country.
With the primary objective geared to assess whether the benefits consequent from tax exemptions justify the revenue losses, they are meant to examine how these exemptions affect investment levels, employment, and economic growth.
An economist at the Finance Ministry, Davis Vuninkoma, on Tuesday, November 19, 2024, in an interview with journalists, said that the ministry’s statistics indicated that the government registered a rise in tax exemption from UGX 947 billion as of 2017 to an estimated UGX 2.4 trillion per closure of the financial year 2021/2022.
According to Vuninkoma, the study employed various analytical frameworks, such as cost-benefit analysis, which measures direct costs or tax revenue foregone against the economic benefits that exemptions are supposed to generate, to measure these impacts that are to be considered.
“What I can assure Ugandans is that the results are to be released before the end of this financial year 2024/2025,” Vuninkoma said.
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He clarified that initially tax exemptions have been used as tools for economic development since the 1960s, aimed at supporting specific industries or activities; however, there is an ongoing debate about their effectiveness and efficiency in promoting real economic growth versus merely providing revenue losses without tangible benefits.
Worldwide studies have shown mixed results regarding the effectiveness of tax incentives. For instance, while some research indicates that tax holidays can attract investment, other studies suggest that they may not significantly influence investment decisions compared to broader economic conditions.
By conducting this study, the government aims to identify which tax exemptions are beneficial and which may need reform or elimination. This could lead to more informed policy decisions that balance fiscal responsibility with economic development goals.
This initiative reflects a growing recognition of the need for transparency and accountability in fiscal policies, particularly concerning how public funds are allocated through tax expenditures. The findings from this study will be crucial for shaping future tax policies and ensuring that they effectively contribute to the economy’s overall health.
