The Effect of Tax Incentives and Tax Holidays on Foreign Direct Investment (F.D.I) In the Oil and Gas Sector of Uganda

Abstract

Foreign Direct Investment (FDI) plays a crucial role in the development and growth of economies, particularly in the oil and gas sector. To attract FDI, countries often offer tax incentives and tax holidays as part of their investment promotion strategies. This study aims to examine the effect of tax incentives and tax holidays on FDI in the oil and gas sector of Uganda. The research adopts a quantitative approach and utilizes panel data analysis, covering the period from 2010 to 2022. The study employs regression models to assess the relationship between tax incentives, tax holidays, and FDI inflows into Uganda's oil and gas sector. Control variables such as GDP growth, political stability, infrastructure development, and resource availability are included to capture their potential influence on FDI. Preliminary findings suggest that tax incentives and tax holidays have a positive impact on FDI in the oil and gas sector of Uganda. The analysis reveals a significant correlation between tax incentives, tax holidays, and increased FDI inflows. The findings indicate that these fiscal policies enhance the attractiveness of Uganda's oil and gas sector to foreign investors, leading to higher levels of FDI. Furthermore, the study explores the mechanisms through which tax incentives and tax holidays stimulate FDI. It examines the role of reduced tax burdens, accelerated depreciation allowances, and exemptions on corporate taxes in incentivizing foreign investors. The research also investigates the impact of stability and predictability in the tax regime on FDI inflows. The study's implications suggest that the Ugandan government should consider maintaining and improving its tax incentive and tax holiday framework to attract more FDI into the oil and gas sector. Policy recommendations include streamlining the tax system, ensuring transparency and stability in tax regulations, and aligning tax incentives with sector-specific goals and development plans. This research contributes to the literature on FDI and tax policies in the context of developing economies, specifically focusing on Uganda's oil and gas sector. The findings provide valuable insights for policymakers, investors, and scholars interested in understanding the dynamics of FDI attraction and the role of tax incentives in stimulating investments in the oil and gas industry.