In 2010, just before Heritage Oil and Gas Ltd. sold its licenses for exploration in Uganda, the company changed its domicile from the Bahamas to Mauritius.
Mauritius, the Eastern African island nation, has a no-double-tax agreement with Uganda, meaning Heritage Oil could avoid paying a $400 million capital gains tax on the $1.4 billion deal. It's a move that the Ugandan Revenue Authority challenged in court and won.
Emails recently released through the Panama Papers leaks illustrate how Heritage attempted to dodge taxes and back up what the Ugandan government already knew. And with renewed public interest in the case, tax and justice activists are calling on government to renegotiate double tax treaties. They contend that weak regulations are still an issue.
"The biggest benefit of these leaks is for us to be able to put our house in order,” said Jane Nalunga, Uganda director for the Southern and Eastern African Trade, Information and Negotiations Institute (SEATINI).
"… [I]f a country is known to be a tax haven, then we shouldn't have a double taxation treaty with it," she added. "So these leaks are going to help us to strengthen our arguments. So the biggest advantage is the policy framework that we are going to put in place will be more strong and tight."
Tax dollars needed
Many have pointed out that $400 million could make a substantial difference in Uganda's health care sector. This is especially true for rural clinics, where shortages of medicine and basic supplies and a lack of health care professionals are common.
While taxation is important, allocation is the crux of the issue for rural communities, contends Onesmus Mugyenyi, deputy executive editor of the Advocates Coalition for Development and Environment (ACODE). The Kampala-based coalition analyzes public policy, specializing in agricultural, environmental and trade issues.
Mugyenyi said that even when the government does receive large tax payouts, the money doesn’t make its way back to local government and communities.
"So you realize that while we say we are now getting these resources, while we post that we've already gotten some good billions from this oil, [tax money] is not going back to the community," he said. "It is not improving actually the livelihoods of communities. … Where have we invested that money?"
Grants diminished
Grants to local governments have fallen in the national budget from 25 percent in 2004 to 15 percent in 2015, and many worry that this trend is likely to continue.
For those who live in rural regions, it will mean that whether or not taxes are paid accordingly, accessing basic government resources is likely to remain a challenge.
