Revenue collections in the first half of the 2025/26 financial year fell short of target, despite registering year-on-year growth, the Ministry of Finance has said.
Cumulative domestic revenue collections for the period July-December 2025 amounted to Shs16.877 trillion, representing 94.1 percent performance against the Shs17.931 trillion target.
This translates into a revenue shortfall of Shs1.053 trillion halfway through the financial year ending June 30, 2026.
The Ministry of Finance says the underperformance was largely driven by delays in remittance of pay-as-you-earn (PAYE) following the transition to a new payroll system in local governments, as well as reduced donor funding, particularly for projects previously supported by USAID.
Other factors cited include the proliferation of illicit alcoholic beverages, a decline in the value of taxable imports, and an increase in non-vatable imports during the period.
Despite missing the target, revenue collections grew by 8.69 percent compared to Shs15.528 trillion recorded in the first half of the previous financial year, mainly due to improved levels of economic activity.
On a monthly basis, government expenditure in December 2025 amounted to Shs2.456 trillion, exceeding the planned Shs2.314 trillion by 6.2 percent (Shs142.41 billion).
Overspending
The overspending was largely attributed to higher expenditure on goods and services, which amounted to Shs795.73b against a target of Shs609.87b, driven by increased spending on medical supplies and election-related activities.
Grants to other government agencies also exceeded projections, amounting to Shs689.89b, surpassing the monthly programme by 11.9 percent (Shs73.47b).
Most of the funds were disbursed to local governments for service delivery in education, health, water and sanitation, and road infrastructure.
Net acquisition of non-financial assets in December stood at Shs676.6b, exceeding the monthly target by Shs230.67b, mainly due to increased spending on domestically funded development projects, particularly roads and bridges, following a supplementary budget released in the second quarter of the financial year.
Overall, the Ministry of Finance said economic activity continued to strengthen, supported by improving business confidence and favourable demand conditions.
The Composite Index of Economic Activity rose to 181.48 in November last year, up from 180.41 in October, marking the fourth consecutive monthly improvement.
The sustained increase reflects resilience across key sectors, including agriculture, mining, manufacturing, wholesale and retail trade, and other services.