How a just tax system can empower Uganda’s economic rise

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By Joshua Kato

Taxation is more than a mechanism to fund public services—it is a powerful instrument to drive economic transformation. In Uganda, taxation is fundamental not only for raising revenue but also for shaping investment behaviour, influencing income distribution, and incentivising innovation.

With over 50% of government revenue coming from the business community, it is clear that companies—particularly small and medium enterprises—are not only essential engines of growth but key contributors to fiscal stability. As a tax expert, I firmly believe Uganda’s tax policy must evolve to reflect economic realities, stimulate formalization, protect local investors, and broaden the active tax base without stifling entrepreneurship.

Uganda Revenue Authority (URA) reported sh21.6 trillion in revenue collection for FY 2023/2024, representing a 14.99% growth over the previous year. The major revenue contributors include Value Added Tax (sh5.4 trillion), Corporate Income Tax (sh2.9 trillion), and PAYE, accounting for a significant portion of government finances. Despite this progress, Uganda's tax-to-GDP ratio remains below 14%, significantly lower than the Sub-Saharan Africa average of 18%. A narrow tax base, coupled with a large informal sector, hinders the country's ability to generate sufficient domestic resources to meet its development goals.

A progressive and transparent tax policy has the potential to unlock business growth. Unfortunately, Uganda’s businesses often face burdensome compliance procedures, unclear guidelines, and high transactional costs.

These challenges disproportionately affect SMEs, which form over 90% of the private sector but contribute less than their potential to tax revenue due to limited access to financial services, regulatory constraints, and limited tax education. By introducing tiered tax regimes, simplifying registration, and automating reporting, Uganda could foster an entrepreneur-friendly tax system that balances revenue needs with economic dynamism.

Equity must be the cornerstone of any tax reform. Too often, exemptions are granted without merit or proper oversight, favoring politically connected entities or large foreign investors while neglecting local entrepreneurs who shoulder high operational costs with limited institutional support.

Incentives must be results-based—rewarding firms that create jobs, invest in priority sectors, or contribute to export diversification. Local investors deserve not only fair taxation but a deliberate policy environment that nurtures their resilience. Tax holidays, VAT refunds, and customs incentives should be monitored against benchmarks to ensure they serve public interest, not private gain.

Over the past decade, the Ugandan government has invested in infrastructure, technology, and regulatory reforms aimed at enhancing business productivity. Initiatives such as the Digital Tax Stamp (DTS) system, Electronic Fiscal Receipting and Invoicing Solution (EFRIS), and One Stop Border Posts (OSBPs) have improved transparency, reduced smuggling, and increased compliance.

However, these innovations must be paired with ongoing engagement and support. Government must streamline processes like VAT refund approvals, fast-track resolution of disputes, and continue building institutional capacity in tax administration. Policy predictability is critical—frequent changes and unclear enforcement mechanisms breed fear rather than compliance.

One of the biggest gaps in Uganda’s tax system is the limited depth of consultations during tax law amendments. Business associations, civil society, and academic voices must be formally integrated into URA and Ministry of Finance policymaking processes.

Establishing tax working groups, sector-specific consultations, and publishing impact assessments before new policies are enacted can lead to more inclusive outcomes. Uganda’s tax reform should be bottom-up, capturing the lived experiences of those who pay, collect, and administer taxes. Participatory policymaking fosters trust, enhances compliance, and creates tax laws that are more grounded and implementable.

Uganda must transition from counting taxpayers as statistics to cultivating taxpayers who actively contribute. This means formalizing the informal economy, which comprises over 60% of employment. The country can achieve this through a mix of incentives and light-touch compliance: simplified filing systems, mobile-based payment tools, startup tax holidays, and access to affordable credit tied to registration.

Moreover, the government should enforce minimum taxes in high-earning informal sectors—transport, real estate, and hospitality—while helping them transition into full compliance. Integrating local government tax systems into the national grid and harmonising revenue collection will also reduce leakage and duplication.

Taxation in Uganda must serve as a catalyst for growth, not just a means of state revenue. A tax system rooted in fairness, predictability, and transparency builds trust. It creates a culture of compliance and accountability. By focusing on equity, protecting local investors, and fostering a culture of inclusion in tax policymaking, Uganda can create a sustainable tax framework that empowers both government and the private sector.

As the economy grows, the demand for infrastructure, education, healthcare, and social services will rise—making it imperative that our tax systems rise to meet this demand. The bridge to national prosperity lies in ensuring that every business—small or large—has a fair shot at success, and every tax shilling collected is put to visible, impactful use.

As Uganda refines its fiscal path, the real question remains: Shall we craft tax laws that simply chase collections—or shall we create a tax system that reflects the dignity, ambition, and enterprise of every Ugandan striving to build a better tomorrow?

The writer is a Chartered Accountant and an international Chartered Tax Advisor.