Uganda’s tax regime is constantly evolving. Each year, as the Uganda Revenue Authority (URA) works to meet its revenue targets, the Government introduces new taxes or adjusts existing ones to finance the national budget. The financial year 2026/27, which began on July 1, 2026, is no exception.
Among the notable changes this financial year is a significant increase in the Value Added Tax (VAT) registration threshold.
Parliament approved an increase in the VAT registration threshold from Shs150 million to Shs300 million starting July 1, 2026.
The move, projected to generate Shs349 billion, is expected to ease compliance for small businesses and improve tax administration efficiency.
This change comes against the backdrop of a growing resource envelope of Shs84.39 trillion for FY2026/27, up from Shs81.61 trillion in the previous year, with domestic revenues expected to contribute Shs45.96 trillion.
BD Life explores what this rise in the VAT threshold means and its effects on enterprises and Uganda’s economy.
Ms Juliet Najjinda Mutabaazi, PwC associate director for indirect taxes, says that Value Added Tax (VAT) in Uganda has undergone significant evolution since its introduction on July 1 1996, when it replaced the earlier sales tax system.
‘The previous regime was a single-stage sales tax imposed at the manufacturing or import level. VAT introduced a broad-based, multi-stage consumption tax applied along the entire supply chain, with the key feature of allowing input VAT recovery,’ she explains.
The transition to VAT was driven by the need to modernise the tax system, broaden the tax base and support increasing government expenditure in line with economic growth. At inception, VAT was set at 17 percent, later raised to 18 percent, where it has remained stable. Over time, VAT has expanded to cover imported and digital services, aligning Uganda’s system with global trends.
Digitally, VAT administration has transformed from manual filing to electronic submissions via URA’s e-tax portal, and now to integration with the electronic fiscal reporting and invoicing system named Electronic Fiscal Receipting and Invoicing Solution(EFRIS), giving URA real-time visibility of invoices and reducing fraud risks.
Parliament approved an increase in the annual VAT registration threshold from Shs150 million to Shs300 million, a measure expected to generate Shs349 billion in additional revenue.
The change is part of the FY2026/27 budget, which has a total resource envelope of Shs84.39 trillion and targets Shs45.96 trillion in domestic revenue.
Najjinda explains that the threshold rise stems from the fact that most VAT-registered taxpayers are small businesses contributing minimally to government revenue.
‘Many of these businesses file nil returns regularly, bearing compliance costs while adding to URA’s workload,’ she notes. URA reported that by June 2024, Uganda had 36,417 VAT-registered taxpayers, 90 percent of whom were very small businesses contributing only about 3 percent of VAT revenue.
Raising the threshold is expected to allow URA to concentrate enforcement resources on larger taxpayers, maximise revenue collection, and free smaller businesses from VAT compliance costs and obligations.
Mr John Walugembe, executive director of the Federation of Small and Medium-sized Enterprises (FSME), notes that the Value Added Tax (VAT), traditionally based on commercial transactions, has undergone several changes.
‘Initially, the threshold was set at Shs15 million, but this changed in 2016, and now the government is considering raising it further. For businesses, this presents both opportunities and challenges,’ he says.
Small and Medium Enterprises with turnover below Shs300 million may deregister from VAT, which can cut costs and remove monthly filing obligations, but they lose the ability to claim input VAT.
Businesses should weigh cash flow benefits of staying registered against penalties for non-filing, deregistration approval requirements, and the tax effects of losing VAT recovery.
Deregistration does not remove invoicing/documentation rules; businesses still need proper records, including EFRIS-generated receipts or invoices.
One of the biggest hurdles, Walugembe explains, is compliance. ‘Many micro and small enterprises face difficulties navigating the tax system because only a small proportion of taxpayers generate significant revenue. As a result, these businesses tend to overlook compliance, which can lead to financial strain,’ he adds.
Walugembe believes the proposed changes could provide relief in this new financial year.
‘There has been a push for the government to raise the threshold for micro businesses that have been struggling,’ he notes, emphasizing that formal registration could help enterprises access bigger contracts often reserved for registered companies.
This, he says, is a wake-up call for small businesses to register formally. Formalisation is crucial for growth and competitiveness. Enterprises that cross the threshold stand to benefit from VAT registration, not only in compliance but also in positioning themselves for broader market opportunities.
‘I urge businesses that have surpassed the threshold to consider formal registration. This move will assist in compliance and open doors to bigger opportunities. For those already integrated into the system, it is essential to ensure compliance and prepare for any changes in the upcoming financial year,’ Walugembe advises.
While taxation reforms may seem daunting, they also present a chance for small businesses to grow, formalise, and compete in Uganda’s evolving economy.
Implications of VAT registration for businesses
Ms Najjinda explains that VAT registration allows businesses to reclaim VAT paid on business-related expenses and equipment when filing monthly returns, providing immediate cash flow relief where companies have VAT to declare.
However, registration also requires filing monthly VAT returns, even in months without sales. Failure to file exposes businesses to penalties, the higher of the tax payable or Shs200,000 per month.
‘Being VAT registered implies that the businesses have to file monthly VAT returns even in the months where they do not make any sales, as failure to file the monthly VAT returns exposes such businesses to non-filing penalties. The applicable penalties are the higher of the tax payable or Shs200,000 per month that returns remain unfiled,’ Ms Najjinda explains.
Businesses below the Shs300 million threshold may deregister from VAT starting 1 July 2026 by filing an online application through the URA portal.
Approval depends on URA’s review of historical records to confirm eligibility.
The de-registration from VAT does not take away the requirement for the businesses to issue electronic receipts using the EFRIS system. This is because, under the Income Tax Act, taxpayers are required to support all expenses incurred with either an EFRIS invoice or receipt. A non-VAT registered business continues to be able to generate electronic receipts/ e-receipts off the EFRIS platform.
‘Non-registered businesses cannot reclaim VAT on purchases, though VAT paid remains an allowable cost when computing corporation tax. Deregistration does not remove the requirement to issue electronic receipts under the Income Tax Act, as all expenses must be supported by EFRIS invoices or receipts,’ she notes.
Influence on operations, pricing, and competitiveness
Najjinda further notes that VAT registration carries obligations: filing monthly returns, maintaining detailed records, and issuing EFRIS-compliant invoices. These impact businesses in several ways. Operationally, it requires charging VAT on taxable supplies, filing monthly returns, maintaining detailed records, and issuing EFRIS-compliant invoices. This she says increases administrative costs, demands stronger accounting systems, and raises exposure to audits and penalties.
On cashflows, businesses must remit VAT by the 15th of the following month, regardless of whether invoices have been paid. This creates challenges for firms with slow receivables or thin margins.
Competitively, she notes that consumer-facing businesses are more price-sensitive since VAT is passed on to final consumers who cannot reclaim it.
Ms Najjinda says: ‘Business-to-business taxpayers face less pressure, as they can offset VAT charged against VAT paid on purchases. Some businesses have obtained permission to account for VAT under the cash accounting framework, easing this burden.’
The cash accounting framework records revenue and expenses only when cash is received or paid, prioritising simplicity for small operations over a real-time view of financial health.