Tax shortfalls push government into Shs2 trillion deficit

The Government of Uganda registered a fiscal deficit of Shs2.07 trillion in May 2026, although the shortfall was lower than projected due to reduced spending during the month, according to the latest Performance of the Economy Report released by the Ministry of Finance.

Preliminary data shows that government operations resulted in a fiscal deficit, or net borrowing requirement, of Shs2,071.39 billion compared to the planned deficit of Shs2,146.52 billion. The lower deficit was mainly attributed to government expenditure falling below target.

The report indicates that total revenue and grants amounted to Shs2.79 trillion during the month, representing a shortfall of Shs567.36 billion against the target of Shs3.35 trillion.

Domestic revenue collections stood at Shs2.75 trillion, achieving 90.7 percent of the monthly target and missing the projected Shs3.03 trillion by Shs280.08 billion.

Of the total domestic revenue collected, Shs2.54 trillion came from taxes while Shs206.62 billion was generated from non-tax revenue.

Tax collections underperformed by Shs185.11 billion, with all major tax categories—direct domestic taxes, indirect taxes and international trade taxes—falling below their respective targets.

According to the report, direct domestic taxes registered a shortfall of Shs40.79 billion against a target of Shs906.21 billion.

The underperformance was largely driven by lower-than-expected collections from Pay As You Earn (PAYE), corporate income tax and rental income tax.

“The decline in PAYE collections was mainly due to the decline in chargeable income and the number of employers that filed returns, as well as reduced donor funding during the month,” the report states.

Corporate income tax collections also fell short of expectations, particularly in the transport, storage and communication sectors, as well as real estate, business services and manufacturing.

The Ministry attributed the weak performance in manufacturing partly to load shedding and rising fuel costs, which increased production expenses and squeezed company profits, resulting in lower corporate tax payments.

Government also received significantly less grant funding than anticipated.

The report shows that grants amounted to only Shs38.74 billion against a target of Shs326.02 billion, representing a shortfall of Shs287.28 billion. The grants received were all project support funds.

On the expenditure side, government spending amounted to Shs4 trillion, representing 93.2 percent of the planned Shs4.29 trillion budget for the month.

Spending on wages and salaries remained largely on target at Shs466.99 billion, while expenditure on goods and services reached Shs917.84 billion, falling short of the planned amount by Shs90.1 billion.

Interest payments consumed Shs1.11 trillion during the month, with domestic debt servicing accounting for Shs1.07 trillion of the total.

Government spending on grants slightly exceeded projections, reaching Shs1.38 trillion compared to the planned Shs1.36 trillion.

Meanwhile, spending on social benefits and other expenses significantly lagged behind targets, contributing to the overall expenditure savings recorded during the month.

The report also indicates that government invested less than planned in non-financial assets such as infrastructure and development projects. Net acquisition of non-financial assets amounted to Shs857.15 billion against a target of Shs1.21 trillion.

The latest figures highlight the continuing pressure on government finances as revenue mobilisation remains below expectations amid economic challenges facing businesses and households.

The performance also underscores the growing impact of production constraints, including power disruptions and high fuel costs, which are affecting profitability in key sectors and, in turn, limiting tax collections.