EXPERTS: Oil revenues still at risk of misuse

Kampala, Uganda | THE INDEPENDENT | Tax experts have voiced concerns about the government’s failure to significantly increase domestic revenue mobilisation levels amid dwindling external assistance sources.

Uganda’s domestic revenues have remained at around 13 percent of the economy’s value for years despite government efforts to increase the ratio to between 16 and 18 percent, the Sub-Saharan African average.

This has sustained the need for the country to continue borrowing expensively to cater for the budget needs, a situation that experts say is keeping the country in the cycle of failure to deliver transformational services.

Hilda Tumuhe, Program Officer for Debt and Aid at SEATINI-Uganda, says despite the Domestic Revenue Mobilisation Strategy aiming for 16–18 percent, Uganda’s tax-to-GDP ratio has only grown by 0.1–0.3 percent annually in recent years, far below the 0.5 percent annual target.

This limits the country’s ability to finance its development. On the causes of the low revenue growth rates, Tumuhe cited government policies like tax exemptions whose conditions, like employment, are never met by the beneficiary companies.

The latest assessment shows 22 out of 36 assessed companies performing below the 50 percent staff threshold, exhibiting poor accountability and ineffective investment promotion.

Speaking at a dialogue on domestic revenue mobilisation in Kampala, she also cited the limited transparency on how taxes are used, poor quality public services, and delayed revenue remittances to local governments, which reduce citizens’ willingness to pay taxes.

Domestic revenues are also affected by Uganda’s highly informal sector, which allows for thousands of businesses to operate without paying taxes. Some reports show that about 51 percent of Uganda’s economy operates informally, with sectors like agriculture, which accounts for 24 percent of GDP, contributing less than 2 percent to the tax revenue.

Flavia Kabahenda, the Woman Member of Parliament for Kyegegwa district, said there is a need for a policy that specifically targets the informal businesses so that they can also contribute to the national treasury.

This also comes as the country prepares to start receiving oil revenues, expected in 2027. The oil and gas sector has long been tipped to trigger faster economic growth and development, with the revenues to the government expected at about 2.5 Billion Dollars (close to 9 trillion shillings) per year.

The government has vowed to use the revenues for infrastructural development, which would also be beneficial to the post-oil and gas period.

However, questions persist as to whether this will be strictly followed. Siraje Magara Luyima, Extractives Coordinator, Oxfam Uganda, says the policies in place do not specify what kind of infrastructure is targeted, and who exactly will be benefiting from the investment.

He also expressed concerns about the local government’s ability to effectively utilise the oil revenues.

According to the Public Finance Management Act, the Local Governments where the resources are located are entitled to 6 percent royalties, and the rest goes to the central government.

However, Magara fears that the local government will see these revenues as a windfall and, without planning capacity for it, there would not be proper utilisation. He adds that by now there should be plans being developed at both local and central government levels.

Magara also casts a shadow on the expected oil and revenues being able to contribute significantly to domestic revenues.

Projects like the East African Crude Oil Pipeline (EACOP) have generous tax incentives and risks from double tax agreements.  He says, for example, the EACOP company, domiciled in the United Kingdom, could benefit from the double tax agreements Uganda has with the UK, yet the company also has a 10-year tax holiday.

“Civil society, policymakers, and other stakeholders must design strategies and advocacy actions to ensure resource revenues are maximised and invested inclusively to benefit all Ugandans, now and in the future,” he says.

Magara’s fears about the local government’s ability to manage huge revenues were re-echoed by David Walakira, Senior Financial Analyst at Local Government Finance Commission.

He says the Local Government sometimes get more revenues than they planned for and fails to utilise them. This money is usually returned to the Ministry of Finance.

Walakira says there is a risk that when the government needs urgent cash, it may decide to use the returned cash, as the process of pushing through a supplementary budget may be too long. He is also of the view that the government he help to map their needs and plan for their revenues and expenditures well ahead of the new year.

SEATINI Uganda Executive Director, Jane Nalunga, says revenue mobilisation must be equitable and inclusive, ensuring that everyone pays their fair share. Uganda also has opportunities, including oil, critical minerals, and the global demand for clean energy, which can be leveraged to increase revenue.

However, according to Nalunga, this needs proper governance measures for the country to avoid falling into deeper and more expensive debt.

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