Overview:
Some analysts have called for the removal of tax breaks, arguing they deprive the country of much-needed revenue to reduce poverty and improve welfare.
The Ministry of Finance says Uganda can increase domestic revenue without abolishing tax incentives for new investors, stressing that incentives play a strategic role in job creation and economic growth.
Some analysts have called for the removal of tax breaks, arguing they deprive the country of much-needed revenue to reduce poverty and improve welfare. But Deputy Secretary to the Treasury, Patrick Ocailap, says the money foregone through exemptions is a cost recovered when companies achieve the planned objectives.
“If a company commits to creating a certain number of jobs and meets that commitment, the exemptions achieve their purpose. If they fail, the benefits can be revoked. It is only when the goals are met that the exemptions are justified, not stop it,” he said.
Arthur Sserwanga, a taxation professor at Makerere University Business School, however, questioned the effectiveness of the three-year tax waiver for startups introduced in this year’s budget. He argues the policy does not account for the reluctance of some micro, small, and medium enterprises (MSMEs) to formalize due to fear of dealing with tax authorities.
“I don’t think many entrepreneurs will be motivated to formalize if they feel the tax system will target them,” he said.
Uganda offers a range of tax incentives aimed at attracting investors. These include:
- Income tax exemptions for companies exporting at least 80% of their production
- 25% tax deductions on construction costs for industrial and commercial buildings over four years
- Tax holidays up to 10 years for investments in hotels, hospitals, and other facilities in select regions
- 100% allowances for scientific research, training, and mineral exploration expenses
Most of these incentives have been in place since 1991. The government argues they encourage both foreign and local investment, supporting economic growth and employment.
Yet, critics—including the World Bank—say the incentives limit revenue collection. Qimiao Fan, World Bank Country Director for Kenya, Rwanda, Somalia, and Uganda, said reforms to the tax exemption regime are crucial for achieving the Tenfold Growth Strategy, Uganda’s plan to grow its GDP tenfold to nearly $500 billion by 2040.
Silver Namunane, a World Bank economist, added that companies can exploit long tax holidays, continuing to benefit even after generating profits.
The ruling National Resistance Movement (NRM) acknowledges that domestic revenue remains low at 14.5% of GDP, compared to the Sub-Saharan African average of 20%. Its 2026 election manifesto highlights that revenue leakages and under-taxed commodities have reduced the tax base, despite improvements over the past two years.
The manifesto points to the potential for higher collections:
- VAT compliance gap currently at 60%, equivalent to 6% of GDP or UGX 2.5 trillion
- Digital Tax Stamps (DTS) recently implemented to boost collection from beverages, tobacco, and mineral water, showing promising results
- Plans to streamline preferential excise rates and exemptions on automobiles and aviation taxes to curb tax leakages
The NRM vows to strengthen enforcement against tax fraud, including under-declaration, false declaration, avoidance, and evasion, while improving staff training and supporting businesses to generate wealth. The goal is to reduce the proportion of Ugandans in subsistence agriculture, currently at 68.9%, and increase the formal tax base.
Ocailap concludes, “Among other measures, we are ensuring the systems are in place to collect the revenue without undermining the investment climate.”
The debate over incentives versus revenue collection underscores the delicate balance Uganda faces: attracting investment, creating jobs, and securing funds to support development and social services.