A September 2025 report by the World Bank has revealed that the country’s tax system, despite its comprehensive design, continues to struggle with low revenue yield, significantly lagging behind the sub-Saharan Africa average and the government’s own medium-term targets.
The report shows that with a tax revenue-to-GDP ratio of only 13.9 percent in the Financial Year (FY)2025/2026, Uganda remains below the critical 15 percent threshold deemed essential for accelerated growth and sustainable development.
‘This persistent challenge is exacerbated by a personal income tax (PIT) system that has not been reviewed in over a decade, resulting in bracket creep,’ it indicates.
Compounding matters is the fact that a significant informal sector largely remains outside the tax net.
Furthermore, within the formal sector, high-net-worth individuals (HNWIs) frequently under-report or evade taxes, and large firms capable of making additional new investments, as well as start-up small firms, are exempt from the corporate income tax (CIT), which undermines revenue collection.
The report suggests that to enhance both revenue generation and tax equity, this year’s edition of the Uganda Economic Update focuses on reforms and strategic interventions that provide policy options to redesign the PIT structure, strengthen HNWI taxation, and re-evaluate CIT exemption policies.
It adds that the policy reforms should be intended to broaden the tax base, reduce tax expenditures and improve progressivity and equity of the tax system. If implemented, it predicts, tax revenues could improve by 0.5 percent of GDP.
The report further states that the proposed reforms are consistent with the annual target of the government’s own strategy on domestic revenue mobilisation and the national tax policy.
These emphasise the need to reduce tax expenditures annually and also grow the tax-to-GDP ratio to Vision 2040 targets.
To address this, it is recommended that the government adopt a targeted policy option that enhances the progressivity of the PIT system, increases revenue, and provides relief to low-income earners.
The recommended reform would increase the exemption threshold to Shs4.02m up from Shs2.82m per annum, maintain existing tax rates for most taxpayers, and introduce a new marginal rate of 35 percent up from the current 30 percent for a chargeable income exceeding Shs5.82m.
As a result, low-income earners would remain unaffected, while only the relatively higher income individuals would see an increased tax burden.
The reform is expected to generate Shs149b (0.1 percent of GDP) in additional annual tax revenue.
The impact on individuals’ income would be modest for most, with increases ranging from Shs15,000 for those earning up to Shs1m per month to Shs444,917 for those earning at least Shs9.5m per month.
Overall, the reform is designed to update Uganda’s PIT structure to avoid bracket creep, improve equity and ensure a fairer distribution of the tax burden, while providing relief for low-income earners and strengthening the country’s fiscal position.
Mr Saadia Refaagat an economist with the World Bank says the under-reporting and evasion of taxes by HNWIs represent a significant leakage in Uganda’s tax system.
A multi-pronged approach is essential to effectively bring this segment into the tax net. This is in line with the FY2025/2026 budget, which aspires to close loopholes that cause revenue leakage.