Uganda’s efforts to expand its tax base and formalise businesses are being undermined by a growing trust deficit between traders and tax authorities, according to the Kampala City Traders Association (KACITA). The Association argues that many entrepreneurs remain reluctant to register their businesses because they fear becoming immediate targets for taxation.
KACITA Chairman Hajji Issa Sekitto said the country’s approach to business formalisation continues to be driven more by enforcement than incentives, inadvertently discouraging thousands of small and medium enterprises from entering the formal economy.
“Many traders want to register and formalise their businesses, but they fear that the moment they identify themselves, the taxman will immediately begin pursuing them,” Sekitto stated. He made the remarks on Thursday while featuring as a guest speaker during the dissemination of the Economic Policy Research Centre (EPRC) Uganda Business Climate Index for April–June 2026 in Kampala.
Contrary to the widespread perception that formalisation increases tax obligations, Sekitto argued that remaining informal often proves more expensive. He explained that registered businesses can file tax returns, offset input Value Added Tax (VAT), reconcile withholding taxes and benefit from tax credits and exemptions provided under Uganda’s tax laws.
“Informal traders, however, often lose these advantages because they neither file returns nor maintain proper tax records. While the registered importer can recover input VAT and accurately declare taxable income, an unregistered trader bears VAT as a direct cost and may later face estimated tax assessments from the Uganda Revenue Authority (URA),” he observed.
“By encouraging businesses to formalise, we are actually encouraging them to pay less tax than they are currently paying under informality,” he added.
The concerns resonate with the tax regime, where the Value Added Tax Act allows registered taxpayers to claim input tax credits, while the Income Tax Act permits allowable deductions based on proper accounting records. Businesses operating outside the formal system are generally unable to access these benefits.
Beyond taxation, Sekitto questioned URA’s handling of inactive businesses. He argued that once entrepreneurs obtain a Tax Identification Number (TIN), they often continue receiving tax reminders and assessments long after their businesses have closed.
“Businesses fail every day because of market conditions, capital shortages and other economic shocks. Once someone is no longer operating, there should be a mechanism for updating those records instead of continuing to issue tax demands,” he said. ”
He proposed that URA establish a monitoring system capable of tracking business closures and inactivity, arguing that such reforms would strengthen confidence in the tax administration system.
Responding to concerns raised by traders, Tracy Akello, Manager for Domestic Taxes at the Uganda Revenue Authority, acknowledged that businesses remaining outside the formal tax system expose themselves to estimated tax assessments, which are often lengthy and expensive to challenge.
“When a business remains informal, URA will estimate its tax liability based on comparable businesses,” she said. “Our approach is moving from enforcement to voluntary compliance, and that is why tax education is essential.”
Akello said URA is increasingly partnering with the Uganda Registration Services Bureau (URSB), KCCA and local governments through a Tax Register Expansion Programme designed to simplify business registration.
Under the arrangement, entrepreneurs registering companies through Uganda Registration Services Bureau – URSB receive a TIN almost immediately, while digital platforms such as the Instant TIN service enable taxpayers to complete registration in about nine minutes free of charge. She also highlighted government tax incentives aimed at encouraging business formalisation.
Businesses with investment capital below Shs500 million may qualify for a tax holiday under the Income Tax Act, provided they satisfy statutory conditions, including local ownership requirements and eligibility criteria prescribed in law.
“The exemption is provided by law,” Akello emphasised. “It is not something URA grants at its discretion. Our role is simply to verify that applicants meet the conditions.” Although the application process remains manual, URA says it is digitising the system to improve accessibility and reduce processing time.
Weighing in on the matter, Joshua Mutambi, Commissioner and Head of the Department of Processing and Marketing at the Ministry of Trade, Industry and Cooperatives, said Uganda’s business outlook had improved significantly despite persistent operational challenges.
According to the latest EPRC Business Climate Index, business confidence rose by 20.1 index points to 124.9 during the April–June 2026 quarter, compared to 104.8 in the previous quarter, reflecting stronger expectations for demand in the months ahead. Nevertheless, Mutambi cautioned that optimism alone would not resolve structural constraints affecting competitiveness.
He cited rising global fuel prices linked to renewed tensions in the Middle East, higher freight costs, electricity reliability challenges and disruptions caused by Uganda’s May 2026 Ebola outbreak as continuing pressures on businesses. “The survey reminds us that while economic opportunity is expanding, persistent structural burdens require decisive policy action,” Mutambi said.
“We must translate today’s evidence into concrete reforms that reduce business costs, streamline taxation and strengthen Uganda’s industrial competitiveness.”
Government is seeking to increase domestic revenue mobilisation to finance public services while simultaneously expanding private sector investment under the National Development Plan and the country’s long-term ambition of transforming Uganda into a US$500 billion economy.
The National Trade Policy recognises formalisation as critical to improving productivity, expanding access to finance, strengthening consumer protection and integrating businesses into regional and international markets.
Likewise, the Companies Act and the legal framework governing business registration seek to provide entrepreneurs with legal identity, greater commercial credibility and easier access to contracts and financial services-URN. Give us feedback on this story through our email: kamwokyatimes@gmail.com
