By Tom Oniro Elenyu*
As the great Pan-Africanist Kwame Nkrumah once warned, “The domestic must be planned to promote the interests of its own nationals… otherwise a newly independent country may fall victim to the highly dangerous forces of economic imperialism.”
Six decades later, critics argue that the warning resonates uncomfortably in Uganda.
“The 2021/22 budget favours foreigners and foreign investors, and leaves Ugandans as sweepers,” said Victoria Sekitoleko, Vice-Chairperson of the Private Sector Foundation Uganda and a former long-serving agriculture minister in the 1990s, during a budget dialogue on June 16, 2021.
In the name of attracting foreign direct investment (FDI), critics say Uganda may be sacrificing more than it gains.
“Between 2014 and 2018, Uganda reportedly lost approximately US$652 million to trade mis-invoicing and exploitative tax incentives in its mining sector alone, especially gold,” says Onesmus Mugyenyi, Deputy Executive Director at the Kampala-based policy think tank Advocates Coalition for Development and Environment.
In Uganda, where tax holidays and incentives have increasingly come under scrutiny, some analysts describe the system as bordering on “corporate colonialism.”
Beyond tax exemptions, some foreign investors reportedly receive free land, electricity and water. Many operate with broad latitude over labour conditions, determining wages for casual workers who frequently complain about long working hours, harassment and harsh conditions—especially in factories owned by Chinese and Indian investors.
Governments typically defend incentives as necessary tools to stimulate employment and development by making the country competitive for FDI. Yet a 2012 study by the Southern and Eastern Africa Trade Information and Negotiation Institute (SEATINI-Uganda) found that tax incentives can have contradictory economic effects.
Research increasingly suggests that developing countries do not necessarily need tax incentives to attract investment. Decisions to invest, analysts say, are driven far more by the overall investment climate—political stability, infrastructure, governance and market access.
“Tax expenditure has often been used to provide subsidies to influence or incentivize engagement in certain activities,” says Jane Nalunga, Executive Director of SEATINI-Uganda. “These may create linkages, jobs and revenue in the long run.”
But Nalunga says Uganda has yet to conduct a comprehensive cost-benefit analysis to determine whether such incentives are truly delivering returns.
A tax expenditure report shows how much revenue is foregone. According to Nalunga, tax expenditure increased from UGX 2,467 billion (US$705 million), equivalent to 1.76% of GDP, to UGX 3,609 billion (over US$1.03 billion), equivalent to 1.78% of GDP, largely due to revenue foregone under Customs and Excise Duty, which together accounted for 52% of total revenue foregone in FY2023-24.
The findings echo concerns raised by the landmark Thabo Mbeki Panel on Illicit Financial Flows, which estimated that East Africa alone loses more than US$2 billion annually through tax incentives to foreign companies.
Although tax incentives themselves are legal, critics say their impact can mirror that of illicit financial flows by eroding state revenue and depriving citizens of essential social services.
Losses through incentives are often compounded by aggressive tax planning by multinational corporations, including avoidance and evasion strategies that further weaken domestic revenue systems.
In October 2014, for instance, the government of Kenya moved to phase out many tax incentives, shifting focus instead toward infrastructure development as a more sustainable investment driver.
According to the East African Community trade report for 2017, the region’s FDI inflows declined by 25.3% to US$6.6 billion, down from US$8.8 billion in 2016, partly due to inconsistencies in the implementation of tax exemptions among member states.
The same report estimated that the region loses US$2.8 billion annually to tax incentives and exemptions, resources that could otherwise help reduce poverty.
Against this backdrop, some analysts warn that foreign investors may be operating a modern form of economic domination—what critics call corporate colonialism.
“Corporate colonialism,” says Sydney Asubo, former Executive Director of the Financial Intelligence Authority Uganda, is “the policy or practice whereby wealthy or powerful nations maintain or extend their control over other countries, especially by exploiting resources.”
In a 2018 interview, Asubo pointed to several indicators: multinational corporations employing more foreigners than locals despite available local expertise; paying expatriates far higher salaries for similar work; persuading governments to sign confidential contracts favourable to corporations; bribing officials; and failing to transfer skills and knowledge to local employees.
Other practices include providing technical manuals only in the language of the company’s home country or programming machinery in languages unfamiliar to African workers.
Chinese investors, for example, have been criticised for programming equipment and technical documentation in Mandarin—an official Chinese language largely unfamiliar to local employees.
“Based on these practices,” Asubo argued, “one can reasonably say that some multinational corporations are attempting to operate a clandestine form of colonialism in Africa, with varying degrees of success.”
At Makerere University’s affiliated Economic Policy Research Centre, research fellow Emmanuel Erem says the phrase corporate colonialism resonates politically because it reflects lived experience.
Ugandan traders complain of harassment by tax authorities while foreign companies negotiate tax holidays directly with political leaders.
“People are not saying investors are literally colonisers,” Erem explains. “The claim is that the state systematically privileges foreign capital through tax holidays while domestic investors bear the full tax burden—reproducing colonial-era extraction patterns under modern corporate rules.”
Uganda’s real problem, he argues, is not the existence of incentives but how they are designed and governed.
Some analysts describe many exemptions as “legal illicit financial flows”—technically legal but economically harmful capital outflows.
Many companies receiving exemptions, Erem says, would likely have invested in Uganda anyway because they were already operating profitably. The country therefore gives up revenue without generating additional investment.
Even when incentives are intended to stimulate employment, results have been mixed.
Nalunga notes that 22 out of 36 companies that received incentives failed to achieve even 50% of their employment targets.
Taxes waived by government during the review period reached UGX 1.417 trillion (over US$405 million), including waivers approved by Parliament, direct exemptions granted by the Investment Minister, and others authorised under Uganda’s Income Tax Act by the Commissioner-General of the Uganda Revenue Authority.
Nalunga says there is little evidence that some exemptions granted outside the official Gazette were later presented to Parliament for retrospective approval.
“The amounts exempted represent revenue that is simply foregone,” she says.
Analysis of Memoranda of Understanding signed with investors also shows that several companies have not delivered on promised outputs, while some incentives remain unused.
Ultimately, tax exemptions represent revenue that must be replaced by someone else—often ordinary citizens.
“These people don’t have money,” says a private security guard who has worked for Indian companies for more than a decade. “It’s our government that gives them money to set up businesses here.”
Still, Erem cautions that labeling all incentives as corporate colonialism ignores key realities.
Uganda does need foreign capital, particularly in capital-intensive sectors. Some domestic companies also benefit from exemptions, though far fewer.
“The issue is not foreign ownership,” he says, “but asymmetric power and policy bias.”
When a country heavily taxes its citizens, subsidises foreign investors, and fails to extract development returns from those subsidies, he argues, it is not promoting investment but outsourcing development to corporations—on their terms.
That, he says, is why the accusation resonates.
Studies by the African Development Bank have shown that governments relying more heavily on domestic taxation tend to be more accountable and responsive to citizens.
Higher accountability improves what economists call “tax morale”—the willingness of citizens to comply voluntarily with taxation.
But in Uganda, researchers say, the fiscal social contract remains weak.
High corruption levels, poor service delivery and limited transparency over how tax revenues are used have eroded public trust.
According to former Uganda Debt Network communications expert Priscilla Naisanga, multinational companies have effectively created a new economic order in Africa.
The colonial empires and Cold War superpowers, she argues, have given way to multinational corporations and emerging economic powers that dominate global resource flows while shielding operations behind corporate secrecy.
“The rape of Africa,” she says, “is happening faster, more violently and with less resistance than at any time in its history.”
Africa’s desperation for investment, she argues, has created vulnerabilities that predatory corporations exploit.
Resources are lost not only through corruption but also through weak governance and the inability of African governments to manage investment deals effectively.
Companies often treat taxes simply as costs and leverage their negotiating power to secure lower rates or exemptions.
As countries compete to attract investment, they enter a race to the bottom, offering increasingly generous tax concessions.
Uganda, with one of the lowest tax-to-GDP ratios in the region and a growing public debt burden, faces mounting pressure to rethink its incentives framework.
A 2010 AfDB study estimated that Uganda loses about 2% of GDP annually through tax incentives.
Earlier research by SEATINI and ActionAid International found that Uganda lacks a clear policy framework governing how incentives are granted or evaluated.
In some cases, exemptions significantly reduce national revenue.
For example, in the 2009/10 fiscal year, tax incentives reduced the country’s tax-to-GDP ratio by 3.99%. Without them, the ratio would have reached 16.15%.
In FY2013/14, the Uganda Revenue Authority estimated revenues forgone at US$427 million, equivalent to roughly 2% of GDP.
By FY2015/16, tax holidays alone cost the government US$268 million, about 1.1% of GDP.
Even lawmakers have benefited from exemptions. In 2016, members of parliament exempted their own allowances from taxation, costing the treasury an estimated US$15 million annually.
“For every tax we give away,” Naisanga warns, “we may be giving away healthcare, security, good roads, improved welfare for the civil service and so much more.”
Under Article 152(2) of Uganda’s Constitution, the Finance Minister has broad powers to grant tax or non-tax incentives based on recommendations from the Uganda Revenue Authority.
But critics say such discretionary powers are vulnerable to abuse, often benefiting political elites and their allies.
In 2010 the Uganda Investment Authority released a list of 300 investors who had benefited from tax holidays.
Former executive director Maggie Kigozi submitted the list to Parliament during investigations into incentive approvals.
Some companies, she noted, had received tax holidays even though such incentives had officially been abolished in 1997.
Today the result, according to analysts, is an uneven playing field.
Foreign companies often access generous tax holidays, VAT exemptions and customs waivers, while domestic SMEs face PAYE, VAT, excise duties and heavy compliance costs.
“This creates a perception that citizenship is a tax disadvantage,” Erem says.
It mirrors colonial economic systems where foreign firms were protected while indigenous enterprises were taxed and constrained.
“The country subsidises enclaves, not development.”
Nalunga, however, takes a more nuanced view.
Corporate colonialism, she says, is both “Yes and No.”
“No,” because tax incentives are legally embedded within Uganda’s domestic tax framework and theoretically available to all investors.
“Yes,” because many exemptions are opaque and unknown to citizens, while others are granted without proper documentation.
Such selective incentives distort competition, forcing some local businesses to close.
And when tax holidays incubate corporate colonialism, critics say, the investment destination ultimately loses revenue—while investors skim off the cream through repatriated profits.
* Culled from March Issue of PAV Magazine.
