Why Uganda MPs backed new tax incentives for local investors

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Parliament last Thursday approved the proposed investment threshold required for major hotel and tourism investors to qualify for Value Added Tax (VAT) refunds on costs incurred while developing new facilities.

Originally, under Clause 4 of the Value Added Tax (Amendment) Bill, 2026, which seeks to amend Section 28 of the principal law, the Government had proposed granting VAT credits to taxable investors who commit at least $10 million (about sh36.95 billion) for foreign investors and $5 million (about sh18.48 billion) for local investors towards the development of a hotel or tourism facility.

The expenses relate to civil works, feasibility studies, design and construction services, as well as locally produced materials used in construction. They also include infrastructure such as machinery, equipment and fittings not available on the local market.

Furthermore, the Bill provides that these expenses must have been incurred not more than two years before the date of commissioning of the facility.

Committee amendment

However, the benchmark for local investors had been adjusted to $1.5 million (equivalent to sh5.55 billion) in the majority report Finance Committee chairperson Amos Kankunda (Rwampara County, NRM) tabled on Tuesday, April 21, 2026.

Although the Finance Ministry had during consultations defended their stance, saying it was targeted at attracting ‘super investors’, Kankunda said that they found it plausible to lower the amount.

Minority report

Lawmakers in a minority report presented by Karim Masaba proposed an even lower threshold of $500,000 (equivalent to sh1.85 billion) for citizens investing in rural areas and $1.5 million for those investing in urban areas.

Arguing that the latter figure would encourage increased investment in underdeveloped and far-flung areas across the country.

“People investing in Kampala, urban areas and developed national parks, they have the capacity. But there are people who are investing in the tourism areas which are still underdeveloped, like Sipi in Kapchorwa, you will not find anyone investing $5 million or $5 million in Wanale,” Masaba illustrated.  

Musasizi resists amendment

However, when State Minister for Finance Henry Musasizi, while acknowledging members’ concerns, said their proposals were contrary to the objective of maintaining focus on high-impact investments.

“I will have other favours somewhere, but not on this one. This one I want to invite honourable colleagues to support this threshold because it is targeting the $5 billion (equivalent to sh18.5 trillion). We are looking at high-impact investments which can give us 100 jobs, tax revenue, which can help propel the economy,” Musasizi implored.

“All these proposals that were brought have gone through several stages, we have studied them, analysed the revenue implications and implications on the budget. I would wish to pray that this house considers these proposals, because I am looking for sh84 trillion. A movement from sh72 trillion to sh84 trillion must be financed, and these proposals," he urged.

Govt, MPs split hairs on location

However, Silas Aogon (Kumi Municipality, Indep), said that the government must take into account the location of these investments if the policy is to succeed.

“We want to motivate people to invest in all parts of the country and not only invest in Namanve or Kampala.

But it’s hard for areas like Kumi, where there are no factories. Location should move with the pricing, the two should be intertwined,” Aogon emphasised.

He was joined by Sheema Municipality MP Dicksons Kateshumbwa (NRM), who implored the Government to be more realistic in its planning.

“A tourism facility could be a cable car on Sipi Falls in Kapchorwa. You are not going to invest $5 million, which is about sh20 billion, to do a cable car in Kapchorwa or Rwenzori. It is certainly less than that cost,” Kateshumbwa argued.

“Even if you are looking at a hotel, you cannot overinvest in an area where the return on investment is so small that it will not allow you to recoup the investment. You cannot put a sh20 billion hotel in Budadiri or at Kapchorwa because the return on investment is very low. The occupancy rates we have are 1.5 million tourists coming into the country. So, if you are going to invest in a 200-bed hotel…..” he added.

Relatedly, Bugabula South MP Maurice Kibalya, argued that "anybody who has the capacity to set up such a powerful hotel doesn’t need the threshold, but we are looking at a situation of attracting more people into the business so that we benefit more. If we only look at the high-end class, we shall suffocate the low-end class,” said Kibalya.

MPs want timeframe increased to five years

Amid the debate, Budadiri West MP and former 2026 presidential candidate Nathan Nandala Mafabi interjected, proposing that the timeframe be extended to at least five years. Saying that was the minimum period needed to develop such investments.

“For that purpose, my only request is to ask my young brother is the period. $1.5 million, if you multiply by sh4,000, that is sh6 billion. For a member of parliament who is going to work for five years, saving sh10 million per month, you need sh120 million. To get sh6 billion, you need 50 years..(laughs)” Mafabi pointed out.

“With $1.5 million, you will have a modest hotel with about 30 rooms, which is also allowed for purposes of having waivers on import of hotel equipment and the rest. If you want to promote the hotel industry, $1.5 million is the best, and even the period is too small. The two years, that means you will go to Housing Finance to borrow money at 19 percent at the end, that facility will be taken and sold away. People invest money, but not necessarily all the money is theirs. They borrow money on the stock exchanges, in banks and invest,” he retorted.

More Stakeholders speak out

On April 15, 2026, while appearing before the MPs, Cephas Birungi, the Uganda Hotel Owners Association General Secretary, quipped that while the investment threshold is poised to boost investment in the tourism sector, it appears stringent.

“We know that there are some hoteliers in this room, whether they are on this or the other side, but we know that from our survey as hotel owners, we don’t reach the $5 million cap. So, who is this incentive intended for, if you know in high jump all of us can jump up to six feet, and you say you only qualify after eight feet, then nobody will qualify,” Birungi said.

“You know we have hotels; we have invested $1 million (sh3.7 billion) with a lot of struggle…” he wondered.

Rather than have an incentive that few can access, Birungi urged committee members to reasonably revise the figure downwards.

“The reasonable position is $500,000, that is about sh2 billion,” he implored.