The Ugandan government has unveiled a sweeping financing strategy for the 2025/26 fiscal year, aiming to raise over Shs2.4 trillion in additional domestic revenue while simultaneously easing the tax burden on small businesses and startups.
Outlined in a recent parliamentary address, the strategy blends new tax measures, improved enforcement, and targeted reliefs intended to formalize the economy and promote private sector growth.
The government plans to raise Shs1.89 trillion through enhanced tax administration and another Shs538.6 billion via fresh tax policies.
Other components of the plan include repurposing funds from underperforming sectors, tapping concessional financing from the World Bank and IMF, and leveraging Public-Private Partnerships (PPPs), climate finance, and international bonds to close funding gaps.
“These amendments are intended to enhance tax administration, encourage voluntary compliance, and empower the Uganda Revenue Authority (URA) to effectively enforce tax laws,” a government spokesperson said.
Tax Incentives to Spur Private Sector Growth
The government’s tax package, effective July 1, 2025, includes several incentives targeting startups and small businesses:
- Startup Income Tax Holiday: Citizen-owned startups will enjoy a three-year income tax holiday, aimed at reducing early-stage costs, boosting innovation, and increasing employment.
- Capital Gains Tax Exemption: Individuals transferring personal business assets to companies they control will be exempt from capital gains tax, a move intended to support business formalization.
- Stamp Duty Removal: Stamp duty on mortgages and related agreements has been abolished to lower borrowing costs.
Existing taxpayers also stand to benefit from relief measures:
- Interest and Penalty Waiver: Businesses with outstanding tax liabilities as of June 30, 2024, can receive waivers on interest and penalties if they settle the principal amount by June 30, 2026.
- EFRIS Reform: The fixed Shs 6 million penalty for non-compliance with the Electronic Fiscal Receipting and Invoicing System (EFRIS) has been replaced by a more proportional penalty—twice the tax amount owed.
Excise and Trade Tax Changes
The new fiscal measures also introduce adjustments to excise duties and international trade taxes:
- Higher Sin Taxes: Excise duty on both imported and local cigarettes has been raised to discourage consumption and boost revenue.
- Beer Tax Revision: Duty on beer brewed with at least 75% local content has been adjusted for tax uniformity. A redundant tax on beer made from locally malted barley has been scrapped.
- Import Declaration Fee: A new 1% import declaration fee will apply to taxable goods, aligning Uganda’s policy with East African Community standards.
- Export Levy Introduced: A $10 per metric ton export levy will apply to wheat bran, cotton cake, and maize bran to encourage local processing in the animal feeds sector.
- Textile Import Duty Reduction: Duties on imported fabrics and garments have been lowered—from $3 to $2/kg for fabrics, and from $3.5 to $2.5/kg for garments—to support traders.
Additionally, to prevent an increase in electricity tariffs, the government has extended a one-year income tax exemption for Bujagali Energy Limited, honoring contractual obligations until June 30, 2026.
The 2025/26 budget reflects a delicate balance between growing revenue and stimulating the economy—particularly through startup support, infrastructure investment, and industrialization.
However, the effectiveness of these measures will depend heavily on timely implementation, transparency, and private sector confidence in policy stability.