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Attracting Investments Using Tax Incentives in Uganda: The Effective Tax

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  • Lakuma, Corti Paul

Abstract

Uganda operates a wide array of tax incentives schemes to attract investments like other countries in East Africa. However, due to significant amount of revenue foregone due to such schemes, Uganda has embarked on the process of rationalizing its overall incentive regime. This study examines the tax burden of various tax incentives schemes operational in Uganda by estimating the effective marginal tax rates (EMTR) and effective average tax rates (EATR). We find sectoral variations in effective average tax rates due to a selective tax holiday and preferential income tax. Overall, tax holidays and preferential income tax rates lower the effective tax burden to a single digit percent and encourage individual tax avoidance strategies. We find that the surge inflation registered during 2010/11 had an adverse effect on effective tax rates. Furthermore, our results confirm in previous findings that tax holidays effectively reduce EATR and favour high-profit short-lived (less than 5 years) investment projects raising doubts about their overall rationale.

Suggested Citation

  • Lakuma, Corti Paul, 2019. "Attracting Investments Using Tax Incentives in Uganda: The Effective Tax," Research Series 291791, Economic Policy Research Centre (EPRC).
    • Handle: RePEc:ags:eprcrs:291791
    DOI: 10.22004/ag.econ.291791
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    Cited by:

    1. Corti Paul Lakuma & Rehema Kahunde, 2023. "Global minimum corporate income tax: Challenges and prospects for Uganda," WIDER Working Paper Series wp-2023-137, World Institute for Development Economic Research (UNU-WIDER).

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    Keywords

    Financial Economics; Political Economy; Production Economics;
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