Ordinary Ugandans remain the main financiers of the national budget, even as government spending rises and concerns grow over corporate tax avoidance.
Uganda Revenue Authority added nearly 730,000 new taxpayers in the previous financial year. This raised the total number of registered taxpayers to 5.25 million.
However, the Auditor General’s Report shows that only 48 percent of registered taxpayers paid taxes.
This means about 2.7 million registered taxpayers, or 52 percent, remained inactive.
Among those who contributed revenue, 20 percent were employees under the Pay As You Earn system. Under PAYE, employers deduct taxes directly from workers’ salaries.
The figures suggest that growth in the taxpayer register has not produced stronger compliance. The gap appears more pronounced in corporate income taxation.
Revenue grows, but tax effort remains weak
Before the 2025/26 financial year, Uganda’s domestic revenue rose from Shs22 trillion in 2021/22 to Shs32 trillion in 2024/25.
That represented a 46 percent increase over four years.
However, the country’s tax-to-GDP ratio remains stuck at 13.5 percent.
This is below the 15 percent benchmark for developing countries. It is also below the sub-Saharan African average of 18.6 percent and the global average of 23 percent.
The figures show that revenue growth has largely followed economic expansion. They do not point to major structural improvements in tax mobilisation.
They also suggest that government still captures a limited share of national income, especially from multinationals and high-net-worth individuals.
Same taxpayers paying more
Tax analysts describe the current trend as tax deepening.
This happens when the government collects more money from existing taxpayers instead of widening the tax base.
Ordinary taxpayers pay PAYE, Value Added Tax on purchases, excise duty on fuel and other indirect taxes.
At the same time, some corporations, investors and wealthy individuals benefit from tax exemptions, tax holidays and profit repatriation provisions.
Members of Parliament have also shielded part of their income from taxation.
Although MPs pay PAYE on their basic salaries, they passed amendments that exempt many allowances and emoluments from tax.
Ordinary workers do not enjoy similar exemptions on their allowances.
Debt pressure reduces public spending space
Government borrowing has also continued to rise.
Public debt now stands at about Shs130 trillion.
If Uganda repaid the debt immediately, every Ugandan, including newborns, would carry a burden of about Shs3 million.
The country has already crossed the 50 percent debt-to-GDP threshold.
This breaches the Ministry of Finance’s Charter for Fiscal Responsibility. It also exceeds levels often considered prudent by the International Monetary Fund.
Nearly Shs40 of every Shs100 collected in domestic revenue now goes to debt servicing.
This leaves less money for health, education, agriculture and infrastructure.
Who really funds the budget?
Many citizens still believe the government funds the national budget.
When Daily Monitor interviewed citizens for this article, seven out of 10 respondents said government funds the budget.
In reality, citizens and businesses finance the budget through taxes and other revenue generated from economic activity.
Government collects, allocates and spends those resources.
Africa Kiiza, a PhD Fellow at the Faculty of Business, Economics and Social Sciences at Universität Hamburg, says ordinary Ugandans bear a disproportionate burden.
On April 25, 2026, Parliament approved a Shs84.39 trillion budget for the 2026/27 financial year.
Of this amount, Shs44.18 trillion, or about 52 percent, will be financed domestically, largely through taxation.
“A keen examination of URA’s revenue collection structure reveals a deeper imbalance, an increasing reliance on a narrow base of compliant and easy-to-target taxpayers,” Kiiza says.
He says the burden largely falls on salaried workers and consumers.
At the same time, large corporations and high-net-worth actors often contribute less than their economic footprint suggests.
Corporate tax evasion concerns grow
Kiiza says many corporations continue to evade taxes despite having the capacity to meet their obligations.
URA estimates that Uganda loses about $500 million, or Shs2 trillion, every year through money laundering and other illicit financial flows.
Uganda’s tax-to-GDP ratio has remained between 13 and 15 percent.
This is below the 18 to 20 percent range often recommended by the IMF and World Bank for lower-middle-income economies seeking sustainable development financing.
Kiiza links the gap to weak tax enforcement, generous tax incentives and persistent tax avoidance.
As a result, indirect taxes such as VAT and excise duty have become central to government revenue.
These taxes account for about 30 to 35 percent of URA collections.
They are also regressive because every consumer pays them, including low-income households.
Everyday purchases, including fuel, transport, soap and household goods, help finance the national budget.
Profitable sectors reduce tax burden
Some highly profitable sectors reduce their effective tax burden through legal deductions and exemptions.
These include telecommunications, banking, extractives and fast-moving consumer goods.
Companies may use investment deductions, accelerated depreciation, loss carry-forwards and sector-specific exemptions.
Uganda also faces profit shifting and transfer pricing challenges.
Multinational companies can allocate costs and profits across subsidiaries to reduce taxable income in higher-tax jurisdictions.
Technical gaps remain
URA has strengthened its audit capacity in recent years.
However, Kiiza says technical gaps remain between tax authorities and multinational corporations.
Local companies have also started adopting similar tax-minimisation strategies.
In sectors such as manufacturing, agribusiness and telecommunications, complex ownership structures can hide actual profitability.
Intra-group transactions can also make it harder for tax authorities to assess true income.
Uganda’s investment-led growth strategy has relied heavily on tax holidays and exemptions.
These incentives are common in special economic zones, agro-processing and export-oriented industries.
Fiscal analysts and civil society organisations estimate that exemptions cost Uganda about 2 percent of GDP each year.
That amounts to about Shs5 trillion in foregone revenue.
Although government uses incentives to attract investment and create jobs, weak enforcement of expiry provisions can turn temporary relief into long-term revenue losses.
A question of tax fairness
PAYE continues to be deducted automatically from formal workers.
Small traders and consumers also pay VAT and excise duties embedded in goods and services.
Even informal sector workers contribute indirectly through consumption taxes.
This creates a major imbalance in Uganda’s tax system.
Those with the least bargaining power contribute most consistently.
Those with greater capacity to structure and shift income often contribute proportionally less.
Kiiza says the national budget reflects more than technical financial planning. He says it also exposes economic power relations.
“Answering who funds the national budget exposes a structural imbalance: a system increasingly sustained by ordinary citizens, while significant corporate and high-wealth fiscal space remains undertaxed, underenforced, or selectively exempted.”
He says Uganda must reform tax incentives, strengthen corporate transparency and improve enforcement.
He also calls for stronger international tax cooperation.
Without those reforms, he warns, Uganda’s fiscal system may remain unfair and unsustainable.
Such weaknesses could also undermine Uganda’s long-term ambition of achieving meaningful middle-income status.
