Uganda Government’s tax collections fall short in March as spending rises

Uganda registered a tax revenue shortfall of Shs 92.16 billion in March 2025, marking a dip in collections across all major tax categories, even as government spending during the same period outpaced budget projections, according to the Performance of the Economy Report for March 2025 released by the Ministry of Finance, Planning and Economic Development.

Tax collections for the month amounted to Shs 2,206.43 billion, missing the monthly target of Shs 2,298.59 billion. The report attributes the shortfall to subdued performance in both domestic and international trade-related taxes, along with weak consumption trends and lower-than-expected petroleum imports.

Breakdown of the Revenue Deficit

Direct domestic tax collections stood at Shs 807.51 billion—Shs 31.59 billion below target—largely due to underperformance in withholding taxes on dividends, foreign transactions, and interest from Treasury Bills.

Indirect domestic taxes also fell short, collecting Shs 614.02 billion against a target of Shs 619.26 billion. Excise duty and Value Added Tax (VAT) posted respective shortfalls of Shs 2.88 billion and Shs 2.46 billion. The government cited declining consumption of key goods like beer, spirits, soft drinks, and sugar as the major contributors to the shortfall.

The steepest decline was recorded in taxes on international trade, which fell by Shs 51.26 billion. Revenue from this category totaled Shs 875.94 billion, significantly below the Shs 927.20 billion projection. According to the Finance Ministry, reduced petroleum imports—caused by volume caps and processing delays at Kenya’s Mombasa port—were a key factor behind this slump.

Nine-Month Picture Shows Mixed Performance

Despite March’s underperformance, cumulative tax collections for the current fiscal year (July 2024 to March 2025) have reached Shs 20,923.23 billion, exceeding the target by Shs 45.08 billion. This reflects a 100.2% performance rate—an encouraging sign for government efforts to meet revenue targets amid persistent economic challenges.

However, non-tax revenues told a different story. Collections from other government revenue sources totaled Shs 136.27 billion in March, against a target of Shs 211.07 billion—resulting in a Shs 74.8 billion shortfall. Cumulatively, non-tax revenue since the start of the fiscal year has reached Shs 1,538.19 billion, falling short of the Shs 1,592.38 billion projection.

Government Spending Outpaces Plans

While revenue collection lagged, government expenditure overshot its monthly plan. Total spending in March amounted to Shs 3,163.84 billion, exceeding the programmed Shs 3,128.67 billion. This was mainly due to increased spending on employee compensation, interest payments, and grants to local governments.

The report highlights that Shs 376.68 billion was spent on wages and salaries, up from the planned Shs 373.17 billion. This spike was attributed to supplementary allocations to ministries and agencies that reported wage shortfalls.

Furthermore, the government disbursed Shs 1,238.12 billion in grants to local governments, tertiary institutions, and referral hospitals—exceeding the target of Shs 1,201.26 billion. This reflects the state’s continued commitment to ensuring timely delivery of health and education services.

Broader Implications

The March performance highlights the fiscal pressures Uganda faces in balancing revenue mobilization with expenditure obligations. Experts warn that persistent underperformance in revenue, particularly from international trade and non-tax sources, could strain the national budget if the trend continues in subsequent months.

At the same time, the government’s increased allocations to local governments and critical social services suggest a deliberate shift toward addressing grassroots needs and maintaining public sector stability.

The coming months will be crucial in determining whether Uganda can sustain its revenue performance while containing public spending within manageable limits, especially as global economic uncertainties and regional trade bottlenecks continue to pose challenges.