Kampala, Uganda | THE INDEPENDENT | Uganda has started revising double taxation agreements it has with developed countries to plug tax loopholes that many corporations have been using to evade taxes.
Double taxation agreements govern which country has the right to tax corporate profit when a company has subsidiaries in two or more countries.
Over the years, calls for the review and to completely do away with Double Taxation Agreements (DTAs) have grown louder with civil society organisations pointing to evidence that many developing countries were losing money to developing countries as companies repatriate money without paying tax.
SEATIN, Tax Justice Network and ActionAid, have called for these agreements to be revised to make it fair for countries like Uganda.
Now Stella Nyapendi, a legal official from Uganda Revenue Authority says that they have started with Mauritius and Netherlands agreements. They will also consequently move to other agreements with other countries.
For Uganda, for instance, the DTA with the Netherlands, allows companies to get a tax free deal when they send payments to shareholders via the Netherlands. Uganda and other African governments impose Capital Gains Tax (CGT) on the sale of shares at rates ranging from 30-35 per cent.
Many of the DTAs with Mauritius prohibit the taxing rights of capital gains on the sale of shares to the country of residence of the seller of those shares.
This means that if a company registered in Mauritius sells shares in a business in Uganda, the latter is not allowed to tax the transaction. Mauritius is supposed to, according to arrangements in the DTA Uganda has with it.
But in Mauritius, capital gains tax is zero. It essentially means the company will not be taxed at all.
Uganda, as it is with counterparts, on the continent is struggling to raise tax revenue to fund its budget priorities. Falling budget support from rich countries means that poor countries must revenue money on their own.
Paul Corti Lakuma, a tax expert and researcher at the Makerere University-based Economic Policy Research Centre (EPRC), said the revision of DTAs was a good a move and it would indeed plug tax leakage holes.
“But the review needs to be informed by the benefits and the cost of such policy reversal. The benefits should outweigh the cost,” he said.
It is not clear how much Uganda loses in such arrangements annually but Africa has been estimated to lose between $50bn-$60bn each year in such illicit flows.