Key obstacles to expanding Uganda's tax base

KAMPALA - Finance state minister (general duties) Henry Musasizi has identified corruption, a large informal economy, weak transport infrastructure, and persistent cross-border trade barriers as major obstacles to widening Uganda’s tax base and boosting domestic revenue mobilisation.

 Appearing before Parliament's finance committee, he said that while Uganda has set an ambitious target of raising the ratio to 25 percent, several structural challenges continue to limit progress.

 “The Domestic Revenue Mobilisation Strategy is expiring in 2027, and it was revised after COVID-19 when we failed to meet our targets. We are now focused on broadening the tax base, but we face corruption, smuggling, informality, and infrastructure bottlenecks."

Musasizi also highlighted transport infrastructure as another critical constraint. He cited congestion at border points such as Malaba, where trucks can spend several days waiting for clearance, as well as traffic delays along key trade corridors, including the Jinja–Iganga highway.

These delays, he said, slow down trade and reduce the efficiency of tax collection systems.

“At Malaba, trucks take days to clear due to congestion. This directly affects trade flows and revenue performance."

The informal sector also remains a major challenge. “A significant portion of Uganda’s businesses operate outside the formal tax system, making it difficult for URA [Uganda Revenue Authority] to expand the tax net,” said Musasizi.

Finance ministry and URA officials appeared before the committee to defend the ongoing reforms aimed at increasing the country’s tax-to-GDP ratio, which has stagnated at about 13–14 percent.

URA also presented its ministerial policy statements for the financial year 2026/27, aiming to collect over sh40 trillion to finance the national budget.

The legislators raised concerns about sectoral imbalances in taxation.

Agriculture, which contributes roughly 25 percent to Uganda's GDP, accounts for only about 1 percent of tax revenue due to widespread exemptions and the sector’s largely subsistence nature.

The MPs warned that such disparities limit the fairness and effectiveness of the tax system.

Kira Municipality MP Ibrahim Ssemujju Nganda expressed concerns about the structure of tax incentives, particularly in sectors such as pharmaceuticals, where tax waivers are sometimes viewed as benefiting traders more than end consumers.

Tororo North County MP Geoffrey Ekanya raised concerns over cross-border trade issues within the East African Community (EAC) despite signed agreements with neighbouring countries, including Kenya, to address non-tariff barriers and improve cargo movement.

He said implementation has been slow.

Finance state minister (planning) Amos Lugoolobi informed the committee that government has held meetings at both EAC and bilateral levels and agreed on measures to address border challenges, including traffic flow and cargo clearance.

He said Uganda has come up with plans to push for improved regional infrastructure, including railway connectivity from the Kenyan port of Naivasha through Malaba into Uganda, aimed at easing pressure on road networks and improving cargo efficiency.

URA defended its operational expansion, including increased office space and investment in warehousing facilities.

Abel Kagumire, Commissioner Executive Office representing the Commissioner General John Rujoki, said warehousing remains a necessary mechanism under the East African Community Customs Management Act, allowing traders up to 90 days to clear taxes on imported goods.

He said Uganda’s role as a regional logistics hub for countries such as South Sudan and the Democratic Republic of Congo has increased demand for bonded warehouses.

On domestic revenue mobilisation, Kagumire acknowledged a gradual shift away from reliance on international trade taxes, which he said was declining due to regional integration and tariff reductions.

“As international trade taxes decline, we are intensifying efforts to formalise the economy, broaden the tax base, and ensure more Ugandans contribute to national revenue."

Legislators cautioned that increasing tax rates on existing taxpayers would be counterproductive. Some warned against proposals such as raising PAYE to 40 percent, arguing that this would overburden low-income earners and shrink compliance.

Instead, they urged URA to focus on widening the tax base through improved efficiency, formalisation of businesses, and better enforcement mechanisms.