Uganda’s proposed tax reforms: CSOs warn of rising inequality

As Uganda’s Parliament begins scrutiny of the 2025/26 Tax Amendment Bills, a coalition of over 50 civil society organizations under the Tax Justice Alliance Uganda (TJAU) has sounded the alarm on several provisions that they argue could undermine equity in the country’s tax system.

While commending the government for incorporating some progressive recommendations, the coalition warns that critical aspects of the proposed changes may deepen inequality, strain low-income earners, and entrench systemic inefficiencies.

The government’s legislative package—comprising seven amendment bills targeting excise duty, income tax, VAT, stamp duty, and other tax instruments—is part of a broader effort to expand Uganda’s domestic revenue base. With a target of Shs36.7 trillion in local collections for the upcoming fiscal year, the pressure on policymakers to optimize revenue sources is evident. However, the challenge, according to TJAU, lies not in raising taxes per se, but in how the tax burden is distributed and whether reforms address underlying structural weaknesses.

Tax exemptions for the privileged few?

One of the most contentious proposals is the extension of tax exemptions for Bujagali Hydro Power Project until 2032. While the government has previously defended these incentives as necessary for energy affordability, TJAU and independent reports suggest otherwise. A 2022 parliamentary report revealed that Bujagali Energy Limited had already recovered nearly twice its initial investment, casting doubt on the continued rationale for tax relief. The cost to the public—an estimated Shs115 billion annually—raises questions about the effectiveness and accountability of Uganda’s tax incentive regime.

This case underscores a broader concern: that tax policy continues to favor large corporations, often at the expense of public service delivery. Without transparency and periodic cost-benefit analyses, such exemptions risk becoming fiscal leakages rather than developmental tools.

Small traders at risk

The VAT Amendment Bill’s anti-fragmentation clause, intended to close loopholes exploited by import cartels, may inadvertently ensnare small traders who import goods in small consignments due to limited capital. While the government aims to tighten compliance, civil society groups argue that enforcement should rely more on systems like ASYCUDA (Automated System for Customs Data) rather than blanket policy shifts that penalize legitimate micro-enterprises. This reflects a recurring dilemma in Uganda’s tax policy—reforms designed for large-scale abusers often disproportionately affect smaller players operating on the margins.

Incomplete tools for startup growth

The proposal in the Income Tax Bill to exempt citizen-owned startups from taxes for three years marks a step toward supporting entrepreneurship and formalization. Yet TJAU warns that the grace period is misaligned with economic realities. Most startups, they note, only reach profitability after five years. Moreover, the practical hurdles of compliance—such as filing complex returns using forms that allegedly do not yet exist—may deter the very businesses the law seeks to support.

This disconnect between legislative intent and operational feasibility raises broader concerns about Uganda’s regulatory readiness to implement inclusive policies.

Identity vs. Infrastructure: The TIN-to-NIN Transition

The proposed replacement of Tax Identification Numbers (TINs) with National Identification Numbers (NINs) as the primary taxpayer reference also presents risks. While integration of national databases could streamline tax administration, civil society organizations caution that Uganda Revenue Authority (URA) systems may not be fully prepared. Compounding this is the backlog in NIN issuance by the National Identification and Registration Authority (NIRA), which could lock out eligible taxpayers from compliance and widen the informal economy.

The Weight of Indirect Taxation

The proposal to increase excise duty on fuel—often a go-to source for revenue—reflects Uganda’s increasing reliance on indirect taxes. TJAU warns that such a strategy disproportionately affects low-income households by raising the cost of transport, production, and basic goods. This approach contradicts the principle of progressive taxation, where the tax burden should increase with one’s ability to pay.

The domestic revenue push, while necessary to reduce Uganda’s dependence on external borrowing, must be calibrated to avoid worsening economic exclusion. As the post-pandemic recovery remains fragile, citizens need tax policies that support—not stifle—their resilience.

Promising Reforms Amid Structural Gaps

Despite its concerns, TJAU has welcomed certain amendments. These include the waiver of penalties and interest for taxpayers who clear their principal liabilities by June 2026, and the rationalization of the penalty structure under the Tax Procedures Code to better align with the value of goods involved. These reforms signal a move toward a more balanced and responsive tax system, though CSOs stress that much more needs to be done to ensure consistency and equity.

A Call for Oversight and Broader Reform

Beyond legislative adjustments, the Alliance is pushing for structural reforms in tax governance. This includes a stronger oversight framework for tax exemptions—particularly for multinational corporations—and a clear audit trail to assess their developmental value. TJAU has also urged government action to formalize artisanal mining and curb revenue leakages in gold exports, citing an Auditor General’s report showing over USD 3 billion worth of gold exported without permits or tax assessments.

Conclusion: Tax Justice as a Cornerstone of Development

Uganda’s FY2025/26 tax proposals highlight the tension between domestic revenue mobilization and economic justice. While government efforts to expand the tax base are commendable, the design and implementation of tax policy must be inclusive, data-driven, and transparent. As civil society actors maintain pressure, the debate offers Parliament an opportunity to anchor fiscal reform in the principles of equity, sustainability, and accountability—cornerstones not only of sound economics but also of democratic governance.