Uganda forfeited 5.01 trillion shillings in tax revenue through tax incentives and exemptions in the 2024/25 financial year, up from 3.6 trillion shillings the previous year.
The latest figure represents 16 percent of the revenue collected by the Uganda Revenue Authority during the year, according to a new study commissioned by the URA in partnership with the East and Southern African Trade Information and Negotiation Institute, SEATINI Uganda.
The study, funded by the Government of Ireland, examined administrative tax data, household survey data and other documentary evidence to assess the cost and benefits of Uganda’s tax expenditure regime.
Presenting the findings of the study, titled The Cost-Benefit Analysis of Tax Expenditures in Uganda, Solomon Rukundo, a tax specialist at the Ministry of Finance, said a significant share of the revenue forgone does not come from investment incentives alone, but from exemptions benefiting individuals, public institutions and households.
The study found that tax expenditures benefit a wide range of taxpayers, including individuals, public institutions, private companies and households.
Personal Income Tax expenditures, in particular, were found to be highly concentrated among security personnel, retirement fund contributors and Members of Parliament, who together account for 95 percent of the personal income tax revenue forgone.
The findings come amid growing concern among economists and civil society organisations over the continued use of tax exemptions and incentives, particularly where government has difficulty demonstrating their economic return.
Some exemptions have also proved difficult to remove because they are provided for in law or have continued to receive support from the Executive and institutions that benefit from them. Rukundo cited the Corporate Income Tax holiday granted to Bujagali Energy Limited in 2017 as one such case.
The exemption has been repeatedly renewed despite criticism and is currently expected to run until 2032.
He said the government has maintained the exemption partly because Bujagali’s 250-megawatt power station is one of the country’s largest electricity generators after Karuma, and imposing tax on the company could affect electricity tariffs. The study also identifies the income tax exemption for Savings and Credit Cooperative Organisations, SACCOs, as another measure whose removal has faced resistance.
The exemption is due to expire in 2027, although President Yoweri Museveni has previously called for it to be maintained.
Meanwhile, the number of companies benefiting from major investment-related tax incentives has increased sharply, from just two in 2018 to 123 in 2025.
Income tax exemptions were the most widely used investment incentive, followed by exemptions involving VAT, excise duty and stamp duty.
According to Rukundo, about half of the firms benefiting from the incentives were established after the current incentive regime was introduced.
The study therefore suggests that the incentives may have helped attract new investment while also supporting the expansion of existing businesses.
However, the findings also raise questions about whether the revenue being forgone is justified by the economic benefits generated by the beneficiaries.
VAT expenditures are concentrated in mining, oil and gas, government projects, financial services and industry, while some VAT measures also support household consumption of agricultural and other essential goods.
The Ministry of Finance says tax exemptions granted to oil and gas companies are expected to be removed once commercial production begins.
Excise duty expenditures, meanwhile, are concentrated in the beer and spirits sectors, while customs duty expenditures largely benefit companies importing raw materials, machinery and equipment through stays of application and duty remission arrangements.
Corporate Income Tax expenditures mainly benefit companies receiving tax holidays and sector-specific exemptions.
The 10-year income tax holiday available to qualifying sectors accounts for the largest share of Corporate Income Tax revenue forgone.
The study also points to another layer of preferential treatment that has not yet been quantified.
This includes provisions contained in ordinary sector-specific rules covering financial services, insurance and extractives, as well as instances where government commits to pay taxes on behalf of private taxpayers.
Participants at the launch questioned why some high-income earners, including MPs, security personnel and judicial officers, continue to benefit from income tax exemptions while Uganda faces growing pressure to raise more domestic revenue.
Shirley Kongai, chairperson of the real estate sector at the Private Sector Foundation Uganda, said the problem also extends to parts of the informal economy.
She said many real estate brokers and agents are not adequately captured in the tax system, despite contributing to transactions that ultimately determine the value of property on which tax is assessed.
Kongai attributed much of the difficulty to inadequate data, saying government cannot effectively design tax policy where it does not have sufficient information about economic activity and taxpayers.
Ronald Nyenje Makumbi, Manager of Tax Expenditure Analysis at URA, acknowledged that the informal sector remains a major challenge, particularly because of difficulties in collecting reliable data.
He said URA will continue recommending policy changes aimed at improving tax administration, while noting that revenue collection has continued to improve.
The Ministry of Trade, Industry and Cooperatives is proposing the establishment of a multi-sectoral unit to manage, monitor and evaluate Uganda’s tax incentive regime.
Patrick Mugisha, Commissioner for Business Development and Quality Assurance at the ministry, said tax incentives affect businesses and individuals across different sectors and therefore require expertise from several government institutions.
He said a multi-sectoral mechanism would allow government to assess incentives from different perspectives and identify those that can be retained, reformed or removed.
Jane Nalunga, Executive Director of SEATINI Uganda, said stronger management of tax expenditures is particularly important as Uganda seeks to increase domestic revenue and pursue its long-term economic ambitions.
She said Uganda is targeting a 500-billion-dollar economy by 2040 at a time when official development assistance is declining and geopolitical tensions, including conflicts in the Middle East, are affecting international trade.
Nalunga said the growing pressure on government resources makes it necessary to scrutinise every tax expenditure and establish whether the country is receiving sufficient economic and social returns.
The study therefore places Uganda’s tax incentive regime under renewed scrutiny, with the government facing the challenge of balancing investment promotion and sector support against the need to mobilise more domestic revenue-URN. Give us feedback on this story through our email: kamwokyatimes@gmail.com
