Uganda has set an ambitious target to raise UGX 37.2 trillion in domestic revenue in the Financial Year (FY) 2025/26, representing a sharp increase from the projected UGX 31.9 trillion in FY2024/25, as the government intensifies efforts to reduce dependence on debt and external financing.
Delivering the budget speech at Kololo Independence Grounds, Finance Minister Matia Kasaija said the domestic revenue target will account for 60% of the national budget, with the balance to be met through a mix of concessional loans, domestic borrowing, and grants.
The government is banking on stronger tax administration, increased economic activity, and digitised systems to meet its revenue goals.
“This budget aims to accelerate the full monetisation of Uganda’s economy through enhanced revenue mobilisation and tax efficiency,” Minister Kasaija said.
Sweeping Reforms
In a bold bid to expand its tax base and drive business growth, the government has unveiled a comprehensive package of tax policy reforms for the 2025/26 financial year.
Among the headline reforms is a three-year income tax holiday for startups established by Ugandan citizens from July 1, 2025, onwards.
This incentive is part of a broader strategy to stimulate entrepreneurship, encourage the formalization of micro, small and medium enterprises (MSMEs), and create jobs in a growing but challenging business environment.
“The exemption is intended to support start-ups that struggle with high initial investment costs. The incentive will foster innovation, enhance business survival, and promote employment,” the Minister said.
In addition to the startup exemption, the reforms span income tax, stamp duty, value-added tax, excise duty, and international trade taxes.
These reforms are designed not only to boost government revenue but also to promote a fairer, more predictable tax environment. Key policy changes include:
Capital Gains Tax Exemption: Entrepreneurs who transfer assets to companies they own and control will now be exempt from capital gains tax. This reform is aimed at encouraging the transition from informal to formal business structures, which are essential for improved governance and access to finance.
One-Year Tax Relief for Bujagali Energy Ltd: The government has granted a one-year income tax exemption to the Bujagali Hydro Power Project, expiring on June 30, 2026, to cushion the public from potential increases in electricity tariffs.
Stamp Duty Removal on Mortgages and Agreements: In a move welcomed by the private sector, stamp duty on mortgages and contracts has been removed to lower the cost of borrowing and reduce transactional burdens.
Voluntary Tax Compliance Incentive: A two-year waiver period has been introduced on interest and penalties for taxpayers with outstanding liabilities as of June 30, 2024. Taxpayers must pay their principal dues by June 30, 2026, to qualify.
Changes to VAT and Excise Duty
The government also adjusted penalties related to the Electronic Fiscal Receipting and Invoicing System (EFRIS) following outcry over disproportionate fines. Previously, non-compliance attracted a flat Shs 6 million per invoice. Under the new regime, the penalty will now be twice the tax owed, making the system fairer and more proportionate.
On excise duty, taxes on cigarettes were increased significantly, while a redundant excise duty on locally manufactured barley beer was scrapped. For beer made with 75% local raw materials, the government adjusted the duty to a uniform rate of 30% or Shs 900 per litre, whichever is higher, to standardize taxation across different production methods.
Import and Export Trade Tax Adjustments
Uganda will now charge a 1% import declaration fee on taxable goods under the common external tariff, harmonizing with practices in EAC partner states like Kenya.
In a move to boost domestic industry, the government imposed a USD 10 per metric ton export levy on wheat bran, cotton cake, and maize bran to incentivize local value addition, particularly for the animal feed sector. These raw materials are often exported and re-imported as expensive finished goods.
Textile Sector Relief
Importers in the textile industry will benefit from reduced duties. The import duty on fabrics will drop to USD 2 per kilogram or 35%, down from USD 3. Similarly, the import duty on garments will be reduced to USD 2.5 per kilogram or 35%, down from USD 3.5, responding to longstanding demands from traders for more favorable trade terms.
A Fairer, More Efficient Tax System
Letters to My Younger Self: What Uganda’s CEOs and Professionals Wish They Knew at the StartAccording to Minister Kasaija, the reforms also include technical amendments to tax laws to improve clarity, eliminate loopholes, and boost enforcement capacity for the Uganda Revenue Authority (URA). These include enhanced measures to encourage voluntary compliance and reduce revenue leakages.
“These measures support business growth and enhance URA’s ability to enforce tax laws effectively,” Kasaija noted.
Stronger Revenue Collection in FY2024/25
In FY 2024/25 ending this June, the government expects to collect UGX 31.9 trillion, approximately 14.3% of GDP, reflecting improved tax compliance and administration.
However, this still falls below the required threshold to sustainably finance the country’s growing development needs.
A fortnight ago, URA Commissioner General, Musinguzi Rujoki noted that the taxman had so far collected UGX 27.36 trillion, with about UGX 4 trillion to go.
“We are optimistic that by June 31st, we will meet it. But even if we do, this amount will only cover 43.5 percent of the national budget of 72.1 trillion. The rest (56.5%) will need to be financed through borrowing – a reality that limits our economic progress,” Mr Rujoki said.
Rujoki noted that while Uganda’s economic expansion to UGX 226.3 trillion (USD 61.3 billion) in nominal terms, driven by strong growth in agriculture, industry, and services, provided a wider base for tax collections; fiscal pressures from increased expenditure on infrastructure, social services, and wealth creation programmes continue to widen the financing gap.
FY2025/26 Revenue Mobilisation Strategy
The FY2025/26 budget outlines an aggressive revenue mobilisation strategy built around broadening the tax base, sealing leakages, digitisation, and institutional strengthening.
The government will intensify taxation of under-utilised sectors with high potential, including: Agro-industrial value chains, Minerals (including oil and gas), Tourism, ICT and innovation-based services as well as Informal and small businesses.
This approach aligns with Uganda’s Tenfold Growth Strategy and the Fourth National Development Plan (NDP IV), which aim to expand the economy to USD 500 billion by 2040.
Tax Administration and Compliance Enforcement
To enhance compliance, the Uganda Revenue Authority (URA) will:
Prosecute corrupt tax officials and tax evaders; Intensify the rollout of Electronic Fiscal Receipting and Invoicing Solution (EFRIS) and Digital Tax Stamps; Extend rental tax digitisation and enforce transfer pricing audits for multinational corporations, and Introduce regular tax audits to ensure accuracy of tax declarations
Curbing Smuggling and Informal Trade
Government will deploy modern surveillance tools at border points—including scanners, drones, and vehicle tracking systems—to combat smuggling and illicit trade. High-risk smuggling corridors will be subject to increased patrols and enforcement.
Reform of Tax Exemptions
Uganda is tightening its policy on tax incentives. Going forward, tax exemptions will be rationalised to focus on investments that support industrialisation and job creation. All incentives will be subject to sunset clauses, periodic reviews, and measurable performance benchmarks.
. Legal Amendments and Closing Loopholes
The government plans to amend tax laws to close revenue leakages and simplify the tax code to enhance voluntary compliance. These legal revisions will also provide more clarity for taxpayers, especially in new and complex areas such as digital services and cross-border transactions.
Institutional Strengthening
Minister Kasaija announced increased investment in the URA to recruit and train additional tax officers, improve service delivery, and strengthen audits. Capacity-building initiatives will also target local governments, enabling them to improve own-source revenue mobilisation.
“Local governments and public enterprises will be supported to enhance their internal revenue collection capacities and reduce reliance on the central government,” the Minister added.
Performance Outlook
With the economy projected to grow at 7.0% in FY2025/26, the government anticipates that the higher tax collection target is realistic. The economy is expected to reach UGX 254.2 trillion, with GDP per capita rising to USD 1,324.
The growth is supported by ongoing investments in oil and gas, infrastructure, agro-industrialisation, and digital transformation.
Inflation is forecast to remain below the 5% policy target, and the exchange rate remains stable, creating a favourable macroeconomic environment for domestic revenue mobilisation.
