Local governments are unlikely to achieve the one trillion-shilling local revenue collection target set for 2026. Officials at the Local Governments and fiscal experts blame the anomaly on legal, technical and administrative challenges that continue to constrain revenue mobilisation.
The Local Government Finance Commission (LGFC) set the ambitious target after local revenue collections increased sharply following the introduction of the Integrated Revenue Administration System (IRAS).
However, emerging data reveals that local governments have collected just over three hundred and fifty billion shillings, leaving them with an over six hundred fifty billion shillings shortfall or gap to the target.
The shortfall comes as local governments and urban councils begin preparations for the 2027/28 budget cycle, with officials warning that limited locally generated revenue is constraining their ability to finance development priorities and respond to the needs of residents.
The concern came up at a five-day inaugural Resident Mentors’ Technical Capacity Building Training on Local Revenue Mobilisation, Allocation, Utilisation and Accountability for Improved Service Delivery.
The training brought together finance, commercial and other urban council officials to strengthen their capacity in revenue mobilisation, management and accountability ahead of the budget process.
The officers identified market dues as one of the easiest sources of local revenue to collect. However, they said traditional sources such as trade licences have become increasingly difficult to enforce, particularly among professional service providers.
Lawyers, medical practitioners, accountants and consultants have argued that they already pay practising and regulatory fees to their respective professional bodies and should therefore not be charged again by local authorities.
Lawyer and public finance specialist Henry Ssemanda says the lawsuit by the Uganda Law Society at the High Court and subsequent ruling by the court in its favor further complicated the matter in the case of Kampala Capital City Authority’s attempt to collect fees from lawyers operating in the city.
The application was against the Attorney General and KCCA. Justice Musa Ssekaana quashed attempts to compel law firms to obtain local trading licences.
Ssemanda explained that although the suit was by the lawyers, other professional service providers could rely on the same argument not to pay the required fees.
Ssemanda says the controversy surrounding trading licences is gradually weakening the revenue source and calls for a review of the laws and frameworks governing it.
He also cautioned local authorities against issuing trading licences to companies that are not registered with the Uganda Registration Services Bureau, saying a licence should only be issued to a legally recognised person or entity capable of suing or being sued.
Many district local governments depend on taxi park user fees as the major source of local revenue. However, the officials say this form of tax is difficult to collect.
Some taxi operators reportedly cite political directives against the charges, while others argue that paying fees to more than one urban council amounts to double taxation.
The officers said taxi operators serving routes between two urban councils sometimes insist that they should only pay the authority where they load passengers and not the destination authority.
Revenue and commercial officers say several local revenue sources remain difficult to collect because of legal disputes, inadequate technical capacity and gaps in the revenue administration framework.
Fiscal Policy Analyst Aloysius Kittengo says the one-trillion-shillings target is unlikely to be achieved because some tax policies have not been harmonised, while some revenue streams have also not yet been integrated into IRAS.
The digital system has nevertheless contributed to improved revenue mobilisation, with collections increasing from about 291 billion shillings in 2023 to more than 400 billion shillings in 2025.
Kittengo says the gains from digitalisation are being undermined by policy gaps and delays in bringing all revenue streams onto the system.
He also agrees with local government officers that property rates remain one of the most difficult revenue sources to administer. Local governments, he says, lack sufficient technical capacity to assess and value properties, making it difficult to effectively administer the tax.
Kittengo also calls for operational guidelines on the sharing of park service charges between the local government where a service originates and the destination authority. He says such guidelines would help resolve disputes over which local government should collect revenue from economic activities that cross administrative boundaries.
The financing challenge also extends to the release of central government funds. Kittengo says delays in accessing government remittances are particularly affecting town councils because the law does not give them their own votes. Unlike districts, cities and municipalities, town councils are financed through their parent districts.
This means that town councils must first write to the district Chief Finance Officer and Chief Administrative Officer before funds can be processed and released. Kittengo says the arrangement creates bureaucratic delays that affect the ability of town councils to provide services and account to residents for the taxes collected.
The concerns come amid calls for local governments to change their approach to taxpayers. Jane Nalunga, Executive Director of the Southern and Eastern Africa Trade Information and Negotiations Institute (SEATINI) Uganda, says revenue mobilisation should not focus solely on collecting taxes but should also involve building trust with taxpayers.
She says residents are more likely to pay when they can see a connection between the taxes they pay and the services delivered by their local authorities.
Kittengo says public reluctance to pay taxes is partly driven by the failure to demonstrate how locally generated revenue is being used.
He says local governments should make residents aware of services and development interventions financed through their taxes, including wealth creation programmes. From the analysis, the challenge is not necessarily a failure by local governments to increase revenue.
Data from the LGFC shows that locally generated revenue increased from 256.4 billion shillings in the 2020/21 financial year to Shs318.6 billion in 2021/22, Shs362.2 billion in 2022/23, and Shs405.7 billion in 2023/24, representing an increase of about 58 percent over the three-year period.
However, the figures also highlight the continued dependence of local governments on central government financing.
In FY2023/24, local governments collected Shs405.7 billion in locally generated revenue, compared with Shs5.18 trillion transferred to them by the central government.
Central government transfers increased from Shs3.15 trillion in FY2019/20 to Shs3.62 trillion in 2020/21, Shs4.62 trillion in 2021/22, Shs4.81 trillion in 2022/23 and Shs5.18 trillion in 2023/24.
The share of the national budget going directly to local governments also increased from 12.54 percent in FY2019/20 to 15.26 percent in FY2023/24.
The figures point to a local government financing system in which own-source revenue is growing but remains relatively small compared with transfers from the central government.
The LGFC financing trends show that user fees remain the biggest source of locally generated revenue.
User fee collections increased from Shs109.4 billion in FY2020/21 to Shs178.9 billion in FY2023/24. Revenue classified as “Others” also increased significantly, from Shs41.5 billion to Shs111 billion during the same period.
Local Service Tax collections rose from Shs19.8 billion to Shs28.2 billion, while licence revenue increased from Shs27.1 billion to Shs33.1 billion. Property-related duties and fees, however, declined from Shs58.3 billion in FY2020/21 to Shs40.5 billion in FY2022/23 before recovering to Shs50.1 billion in FY2023/24.
The trends suggest that although local governments have made progress in mobilising their own revenue, the existing revenue base remains insufficient to significantly reduce their dependence on the central government.
From what was highlighted by the officers, experts, and the Local Government Finance Commission, the challenge is not simply how to collect more revenue, but how to reform the legal and administrative framework, strengthen technical capacity, and improve accountability so that local governments can mobilise and retain more resources for service delivery-URN. Give us feedback on this story through our email: kamwokyatimes@gmail.com
