Working Paper 161

Tax incentives to attract foreign direct investment are common around the world, especially in Africa. Even though many commentators remain sceptical regarding their effectiveness, tax incentives remain popular policy tools for governments in low-income countries seeking to attract investors.

Like many other countries in Africa, Uganda has attempted to use tax incentives to attract investors for decades. For many years these incentives took the form of statutory discretionary tax holidays issued by the Executive branch of government. These discretionary tax holidays were abolished in 1997 with the amendment of the Investment Code Act and the introduction of the Income Tax Act. However, over the years, non-statutory tax holidays issued by the Executive re-emerged taking the form of private agreements between the government and specific investors. In 2018 Parliament introduced an extensive non-discretionary statutory tax incentives regime which included a ten-year tax holiday for investors meeting criteria set out in statute. Discretionary tax holidays issued by the Executive were now supposed to be a thing of the past. Recent revelations that the country’s debt to GDP ratio had exceeded 50 per cent, pressure from the donor community and wider press coverage of tax holidays has led to greater scrutiny and public debate about tax incentives.

This paper examines the statutory and non-statutory tax holidays in Uganda and generates recommendations for the way forward and for how the tax holiday regime can be improved. The research employed a mixture of methods including textual analysis, secondary data analysis, and interviews. The textual analysis covered both primary and secondary literature including court rulings, Parliament Hansards, the reports of Parliamentary committees, tax laws, newspaper reports, and tax expenditure reports. Lastly, we engaged in detailed interviews/discussions with officials from the Ministry of Finance, Planning and Economic Development and the Uganda Revenue Authority.

The research found that tax holiday provisions in Ugandan statutes are ambiguous. They are applied in a discriminatory manner and generally lack transparency. Further, although Parliament has attempted to play an oversight role regarding tax holidays, this has largely been limited to making recommendations which have been ignored by the Executive. It is only in recent years that Parliament has taken positive steps to limit tax holidays by rejecting proposed amendments. The research recommends the elimination of tax holidays as the most suitable solution to the challenges posed. However, other recommendations include the use of non-discretionary holidays, making tax holidays more transparent, using reduced rates in lieu of tax holidays and vigilant monitoring by Parliament and civil society organisations.


Ronald Waiswa

Ronald Waiswa is a Research and Policy Analysis Supervisor at the Uganda Revenue Authority. He has collaborated with the ICTD on a number of research projects in Uganda on issues including taxing wealthy individuals and public sector agencies.

Solomon Rukundo

Solomon Rukundo is a lawyer and a Manager – Taxation at Grant Thornton Uganda and a research associate at the Mawazo Tax Policy Research Centre in Kampala. He was 4 previously a Supervisor in the Rulings and Interpretations Unit of the Business Policy Division of Uganda Revenue Authority where he worked for seven years.