Parliament approves Shs30bn tax waivers for two struggling companies

KAMPALA—Parliament has approved tax waivers worth more than Shs30 billion for two struggling private companies and a non-governmental organisation, with MPs divided over whether the relief will revive the beneficiaries or set a dangerous precedent for tax compliance.

The waivers, approved during plenary sittings on Tuesday and Wednesday, cover Newplan Limited, an oil and gas services company; Fresh Cuts Uganda Limited, a meat exporter; and Innovations for Poverty Action (IPA).

Newplan received the largest relief, with Parliament approving a waiver of Shs18.8 billion in tax arrears after MPs argued that supporting the company would preserve local participation in Uganda’s emerging petroleum industry.

Fresh Cuts was granted a Shs8.73 billion waiver despite objections that the company’s financial and governance problems could not be solved through tax relief, while IPA received a Shs2.518 billion waiver after clearing its principal tax liability under an earlier agreement with the Uganda Revenue Authority (URA).

The decisions have renewed questions about the government’s growing use of tax waivers to support distressed organisations and whether such concessions protect strategic businesses or undermine tax compliance.

Oil company rescued

The House approved the Newplan waiver on Wednesday in a sitting chaired by Speaker Jacob Marksons Oboth.

The Committee on Finance, Planning and Economic Development said Newplan had made a significant contribution to Uganda’s petroleum sector, which is considered strategic to the country’s anticipated oil production.

The committee report, presented by its chairperson, Mr Max Ochai, said Newplan secured contracts for work on the East African Crude Oil Pipeline (EACOP) from TotalEnergies in 2018.

At the peak of its operations, the company employed more than 700 workers and consultants.

However, disruptions to EACOP activities saw Newplan lose four major contracts—two with TotalEnergies and two with Trans-African Pipeline Consultancy Uganda Limited.

The company had also borrowed Shs11.2 billion from DFCU Bank to finance EACOP and other oil and gas projects in the Albertine region.

Sheema Municipality MP Dicksons Kateshumbwa said the waiver would help preserve a Ugandan presence in an industry largely dominated by foreign contractors.

“The oil and gas sector is one where Parliament pushed government to come up with local content rules to enable Ugandans to participate. Most contractors under the sector are foreigners,” Mr Kateshumbwa said.

He said Newplan retained workers during the disruptions in anticipation of new contracts that did not materialise, worsening its financial position and leaving it with arrears in Pay As You Earn (PAYE), value added tax and withholding tax.

“As a committee, we believed that government should in such a case enable the company to resuscitate and enable Ugandans to participate in oil and gas,” he said.

State Minister for Industry David Bahati described Newplan as one of the few Ugandan companies that had penetrated the highly competitive petroleum industry.

“The easiest option is to give a waiver to this company to go and start afresh. It is a company of government interest; it is in the right place to help Ugandans,” Mr Bahati said.

But some MPs cautioned against making tax waivers a routine solution to business failure.

Kassanda North MP Patrick Oshabe questioned the non-remittance of PAYE and withholding tax, saying companies that lack recent audited accounts should not qualify for relief.

“A company that is not audited cannot convince this Parliament that it deserves a tax waiver. Now we are dealing with a company that last audited their books five years ago,” he said.

Kigulu North County MP Samuel Kungu Bamuteze also warned that approving waivers without rigorous scrutiny could encourage similar applications.

“We are opening the floodgates to have many waivers coming to Parliament. Let us not go on record that this is the Parliament that only passes waivers without scrutinising them,” he said.

Fresh Cuts gets relief

A day earlier, Parliament approved a Shs8.73 billion waiver for Fresh Cuts Uganda Limited after the Finance Committee concluded that the company met the statutory tests for financial hardship, impossibility of recovery and undue difficulty under Section 43(1) of the Tax Procedures Code Act.

The committee said Fresh Cuts, which employs about 110 people and provides a market for thousands of farmers, had accumulated salary, PAYE and National Social Security Fund arrears.

Its financial position had deteriorated significantly, with liabilities standing at Shs28.66 billion against assets of Shs8.49 billion in 2022.

The committee said a shareholder subsequently wrote off a Shs20.82 billion loan in an effort to revive the company.

Mr Ochai also said URA’s recovery actions had further worsened the company’s financial distress.

He said the tax body froze the company’s bank accounts and confiscated computers and staff records in 2015, forcing operations to stop.

The company subsequently lost three containers that were auctioned at Mombasa Port after it failed to access funds from its frozen accounts, the committee said.

Nyendo-Mukungwe Division MP Gyaviira Ssebina, however, opposed the waiver, arguing that tax relief would not address the underlying governance and management problems.

“The tax waiver under consideration is not the appropriate remedy to enabling Fresh Cuts Uganda Limited to satisfy its tax obligations. It does not address the underlying issues affecting the company,” he said.

Mr Ssebina said the company’s owners acquired it without adequate due diligence and inherited historical tax liabilities.

He cited Shs2 billion in bank loans, unpaid salaries exceeding Shs1.5 billion and mortgage obligations to DFCU Bank of Shs4.016 billion and US$520,767 as evidence of deeper liquidity problems.

Jinja South Division West MP Timothy Batuwa proposed that government consider taking over strategically important distressed companies through the Uganda Development Bank.

“Whereas this company is useful to Uganda, helping in exportation of animal products, what we need is to swap debt with equity so that UDB helps us to run this company and maintain its strategic benefit,” Mr Batuwa said.

Kabula County MP Enos Asiimwe meanwhile urged government to table a tax expenditure report so Parliament can assess the cost of waivers and determine whether the policy should continue.

IPA waiver

In a related development, the House approved a Shs2.518 billion waiver for Innovations for Poverty Action, after the organisation cleared its principal tax liability under a 2017 agreement with URA.

IPA voluntarily disclosed a principal liability of Shs2.063 billion in March 2017 and completed payment by November 2018.

The Finance Committee faulted URA for taking until 2024 to recommend the waiver, six years after the organisation had fulfilled its obligations under the agreement.

The committee said the delay resulted in accumulated interest and penalties, while reduced donor funding and the loss of two US-funded projects left IPA unable to settle the additional liabilities.

The three cases have placed Parliament’s tax waiver powers under renewed scrutiny, with MPs weighing the need to protect jobs and strategically important businesses against the risk of weakening tax compliance.