FAVOURITISM EXPOSED! Chinese firm Grace Foam gets free ride, Ugandan Taxpayers foot the bill; other manufacturers cry foul
The Ministry of Finance is accused of unfairly favoring certain investors in Uganda’s industrial parks, particularly those in the Tangshan Mbale Industrial Park.
Sunbelt Textiles Company Limited, a Jinja-based textile manufacturer, claims that the ministry’s decision to extend tax incentives to Grace Textile International Investment Ltd (Grace Foam), a Chinese-owned company, is unfair and discriminatory.
Uganda has got over eight public industrial parks (IBPs) located in Mbale (Tangshan Mbale Industrial Park), Kampala (Namanve Industrial Park), Mukono, Luzira, Bweyogerere, Jinja, Soroti, Mbale, Kapeeka, Kasese, and Mbarara.
In these parks several investors have invested heavily and set up factories which sometimes produce identical products.
However, some are not happy with the favorable treatment enjoyed by investors based at Tangshan Mbale Industrial Park at a time when others are struggling to stay afloat with zero support.
One of the aggrieved is Jinja based Sunbelt Textiles Company Limited which deals in foam and beddings (mattresses, blankets, bedsheets) and other textiles.
They are now accusing the Ministry of Finance of extending tax incentives to a Chinese-owned company operating under Tangshan Mbale Industrial Park while sidelining them.
The company on the spot is Grace Textile International Investment Ltd, commonly known as Grace Foam, which deals in foam, and beddings (mattresses, blankets, and bedsheets) just like Sunbelt.
PROTEST LETTER
Sunbelt’s protest letter and seen by this publication is dated 4th March 2024 and authored by Kampala Associated Advocates (KAA). It was addressed to the Permanent Secretary to the Ministry of Finance in which legal concerns were raised about the nature of the deal.
The letter questioned the legal framework that allowed Hon. Matia Kasaija’s ministry to assume a private company’s tax obligations, and sought clarity on the criteria used in selecting Grace Foam for such benefit while sidelining others in the same trade.
According to Sunbelt bosses’ protest letter through KAA, the company is a vertically integrated textile factory based in Jinja and began its operations in Uganda in 2013 which has seen it grow steadily over the years. The textile factory was officially launched in 2017 by His Excellency the President of the Republic of Uganda, shortly after Sunbelt installed a weaving section.
“As a vertically integrated factory, Sunbelt manages production from start to finish which means the whole process of value addition of raw materials up to the production of fabrics is done at the factory. Sunbelt currently employs over 1200 Ugandan citizens directly and many more citizens indirectly.
“Sunbelt is also in the final stages of setting up an industrial park that processes and adds value to Uganda’s cotton which will positively impact the livelihood of Ugandan citizens and also help the country reduce its reliance on foreign sourced raw materials. This is because Sunbelt will be able to produce yarn from Uganda and therefore export finished cotton products. The industrial park will be established on 213 acres and the new textile factory will use only Uganda cotton which will go through all the stages of value addition,” the letter reads.
Despite Sunbelt’s huge investment in the economy, its efforts are allegedly being crippled by contradicting government policies, one of which is the tax incentives (exemptions) given to companies that operate in industrial parks.
“Industrial parks, in particular Mbale Industrial Park were allocated free land to build factories and attract investment. The proprietor of the park (Tangshan Mbale Industrial Park Co. Limited) instead mobilised existing companies which were already in operation and paying taxes in central Uganda, specifically Mukono and Kampala, to go and operate from Mbale since they would be carrying on the same business without having to pay taxes,” the letter reads.
“The proprietor of the industrial park [Paul Zhang], who obtained the land for free, also started selling the same land for exorbitant amounts ranging from USD 120,000 to USD 150,000 per acre. The very textiles/fabrics being imported by Ugandans to make clothes attract 35% or $3.5 per kilogram as import duty yet the companies at Mbale Industrial Park do not share in this burden as their import duty is paid by the Ministry of Finance,” the protest letter further alleges.
What hurts Sunbelt bosses more is that the company which is enjoying these tax incentives sadly is importing finished products from abroad, with branding and even “Made in Uganda” labels reportedly already printed, leaving minimal to no value addition on Ugandan soil.
“The factory in Mbale imports finished textiles and only packages them for retail or wholesale and still benefits from tax incentives given by the government.”
In contrast, Sunbelt, operating in the same industry, continues to meet all its tax obligations without any government assistance.
“Sunbelt on the other hand, imports raw materials like yarn and adds value to them by weaving, printing and dyeing them, as well as using locally produced cassava starch to further process the yarn, and still pays taxes after incurring substantial operational costs.
“It is important to note that the very products imported into Uganda and taken to Mbale Industrial Park are the same products being manufactured at Sunbelt’s factory in Jinja. Government’s policy of shouldering the tax burden for textiles imported for use in Mbale Industrial Park is therefore discriminatory and contrary to the presidential initiative of Buy Uganda Build Uganda (BUBU).”
Sunbelt reportedly pays in excess of UGX 400,000,000 in electricity bills and over UGX, 600,000,000 in taxes every month, as well as consuming local raw materials like cassava starch, coffee and rice husks.
“It is disheartening that after investing substantial sums of money, some companies are given preferential treatment by having the government settle their tax obligations for importing finished products.”
Sunbelt reportedly employs over 1000 Ugandans yet the firm enjoying tax incentives employs less than 200 employees.
“Sunbelt has invested substantial sums in high-technology factory equipment, it consumes local raw materials, pays taxes diligently and employs over 1200 Ugandans. The company in Mbale on the other hand, has undertaken very minimal investment by doing what is essentially international trade by importing finished fabrics and other goods; it employs less than 100 people and its taxes are paid for by the Government. This is unfair to other players in the market,” the protest letter observes.
Sunbelt bosses make it clear that they are not pursuing tax exemption as they are cognizant of the importance of tax collection to the development of the country, but advocating for a fair policy which will enable businesses in the textile industry to operate on a level playing field.
“Such a policy of tax exemptions would serve the country better if it were extended to companies that produce goods for export as a way of strengthening the country’s balance of trade position.
“This letter therefore serves as a request for government intervention to extend the same treatment to all the players in the textile industry by doing away with the tax exemption enjoyed by Tangshan Mbale Industrial Park Co. Limited. If the government is so inclined to retain the tax exemption, then it is proposed that all companies, whether in the industrial park or not, should enjoy the same incentives.
“We note that the Government initiative to pay taxes for Mbale Industrial Park ends in June this year, and during one of the engagements at State House, there was indication that there would be no extension of this unfair scheme. We are therefore instructed to implore you to not have this scheme of paying taxes for the importers extended. Otherwise, our Client who does actual manufacture of textiles would find it impossible to compete with importers of finished textiles whose taxes are paid by the Government,” the letter concludes.
HOW DID WE REACH HERE
According to documents seen by this publication, the Ministry of Finance wrote to the Uganda Revenue Authority (URA) on 20th September, 2023, referenced TPD167/238/09, committing to pay taxes for the Grace Textile International Investment Ltd, commonly known as Grace Foam imported “intermediate textile inputs” up to 30th June, 2024.
However, a subsequent URA demand notice dated 4th September, 2024, signed by Ag. Commissioner Customs, Asadu Ksitu shows that Grace Foam had accumulated over UGX 17 billion in unpaid taxes on imports between 1st July and 4th September, 2024, two months after the government’s commitment period had lapsed.
While the Ministry had committed to meet these obligations using money from the national treasury, what remains unclear, and of significant public interest, is whether this money has actually been paid to URA or if it remains a paper commitment.
Citizens and manufacturers alike are now asking why this benefit was made only to Grace Foam, whether any measurable value has been delivered in return, how much money has actually been paid so far from the treasury, what agreement, if any, was signed between the government and the investor, and most importantly, whether the investor has lived up to their promises.
What is even more frustrating to observers is that this same tax commitment had been suspended in September 2022, pending wider stakeholder consultation, but later reinstated in 2023, with no public explanation or engagement followed, raising questions about transparency and accountability in the decision-making process.
Internal ministry correspondence shows different officers forwarding the letter across desks, with annotations indicating uncertainty and the need for guidance, a sign that even within government, the matter was not entirely settled.
While the tax commitment appears official, and the unpaid tax demand from URA confirms the company’s continued imports, no clear evidence has yet emerged confirming that URA received actual payments from the treasury.
This is now a key issue under review by investigative stakeholders, and more information is expected in the coming days.
One source within the foam sector commented that such arrangements, if left unchecked, risk distorting the market, killing genuine manufacturers, and turning Uganda’s industrialisation agenda into a mere cover for high-level importation schemes.
“This is not just about one company, but fairness, transparency, and the future of local industry,” the source said.
As the Ministry of Finance and URA remain silent, public frustration continues to grow, especially among manufacturers who feel abandoned despite their significant contribution to jobs, taxes, and value addition.
This story is still developing, and deeper investigations are underway to establish whether public funds were actually disbursed, and who approved what, and on what basis.
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