Overview:
Experts said the government is losing too much money through undesirable means, such as money laundering, regressive tax policies, tax incentives, corruption, and mismanaged mineral wealth.
The Government of Uganda has been urged to close loopholes that lead to illicit financial flows and affect the mobilisation of domestic revenue.
Speaking at a three-day Regional Dialogue on the impact of Illicit Financial Flows (IFFs) and Debt on Domestic Resource Mobilization organised by SEATINI Uganda in Entebbe, experts said the government is losing too much money through undesirable means, such as money laundering, regressive tax policies, tax incentives, corruption, and mismanaged mineral wealth.
“IFFs (Illicit Financial Flows) and financial crimes are deeply intertwined. Crimes like money laundering, tax evasion, and trade misinvoicing enable the illicit movement of money, undermining governance and economic stability,” Mr Kenneth Natukunda from the Financial Intelligence Authority said.
“Money laundering is a reality in Uganda. Dirty money from crimes such as tax evasion is funnelled into sectors like real estate, where illicit funds are used to construct properties and integrate stolen wealth into the economy,” Mr Natukunda added.
The experts condemned practices like tax incentives to investors, investment agreements with multinationals, and tax maladministration, among others.
The recent tax expenditure reports within the region show that Kenya loses 15 trillion Shillings (510.56 billion Kenya Shillings) annually, followed by Tanzania with about 4.5 Trillion (3.08 Trillion Tanzania Shillings) and Rwanda with about 1.5 Trillion Shillings or 550 billion Francs.
On the other hand, Uganda forfeits 2.97 Trillion Shillings according to a 2023 survey report.
“These losses undermine efforts by EAC member states to achieve the 25% tax-to-GDP ratio set under the Monetary Union Protocol, limiting their ability to mobilize resources for sustainable development reflecting weakness in the tax administration and contributing to the over-reliance on external financing,” said a joint statement by the civil society.
“The challenge in the governance system regarding tax harmonization and debt management within the EAC stems from the difficulty of implementing policies, as each country negotiates independently,” said Cyrus Nkusi from Governance for Africa.
Dr Mwambutsya Ndebesa, the Chairperson SEATINI Uganda, called for efforts to increase local mobilisation of resources to prevent the countries from falling into recolonisation through high debt levels.
Unfortunately, the appetite for borrowing is increasing at a time when international low-interest and concessional loans are dwindling, meaning the countries have to pay heavily in servicing the debts.
Uganda this financial year targets to raise 32 Trillion Shillings, yet the country’s debt servicing obligations amount to 34 trillion, which shows that it is walking a dangerous path despite the Government continuously asserting that the national debt (49 percent of GDP) is sustainable.
In turn, this denies the needed financial allocation to critical areas of the economy and stifles the growth and socioeconomic development of the communities.
John Oduk, Policy Assistant, African Forum and Network on Debt and Development (AFRODAD) expressed worry about the huge amounts going to debt servicing.
Countries like Kenya and Rwanda have debt ratios higher than 65 percent, while in EAC, Tanzania has the lowest at about 35 percent.
The speakers urged the countries to stop the exportation of unprocessed minerals saying the benefits are instead going to the already developed countries which import the raw materials and deny the exporting countries vital revenues and jobs.
They also called for urgent action in the two regions to adopt alternative strategies to address the growing debt crisis and damaging illicit financial flows (IFFs).
The actions suggested include debt swaps, restructuring, and renegotiation mechanisms to alleviate the burden of unsustainable debt while ensuring that borrowed funds are directed toward long-term, productive development.
They also called for regional tax harmonization efforts to reduce tax evasion and capital flight, strengthen tax administration, enforce multilateral tax agreements, and create fairer tax environments, which are crucial to mobilizing domestic resources more effectively.
The joint statement also called for annual Regional Presidential Roundtables, at EAC and SADC levels, for the leaders to discuss “serious policy adaptations and innovations” that can address IFFs and debt burdens facing both regions.
Aloysious Kittengo, Program Coordinator, Financing for Development, SEATINI Uganda called for a mechanism and also proposed a cost-benefit analysis for the tax exemptions being awarded in the name of attracting investment in the EAC, to ensure value for money.
“We cannot effectively finance our development as long as our Common Market Protocol targets remain too low. Additionally, there are significant loopholes in our tax systems, particularly around areas of uncertainty, such as double taxation treaties, which need to be addressed,” he said.
Other speakers included Lurit Yugusuk, Outreach Officer, Institute of Public Finance (IPF), Kenya, Zvikomborero Sibanda, Senior Economist, Zimbabwe Coalition on Debt and Development (ZIMCODD), and Irene Otieno, East African Tax and Governance Network (EATGN).
The Ministry of Finance, Planning and Economic Development insisted that there is no cause to worry amidst Uganda’s rising debt.
Joy Gessa, Principal Economist at Debt and Cash, said Uganda’s debt is targeted to start falling in 2028 when heavy Investments in energy, oil and gas, and transport infrastructure are reduced.
She said, however, that even before then, several measures have been out in place including limiting the amount of debt secured from any sources, as well as rejection of loan requests for unplanned projects.
Gessa also said they are no longer accepting loan recommendations from the President in case the ministry or loans committee decide that the terms are not convenient to the country.