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The World Bank has urged government to introduce a new 35 percent income tax band for individuals earning between Shs5.82m and Shs120m annually as part of reforms to boost domestic revenue mobilisation.

In its 25th Uganda Economic Update, the Bank observed that Uganda’s tax-to-GDP ratio remains stubbornly low at just above 13 percent, well below both the regional average and the government’s own target of 18 percent.

Mr Qimiao Fan, the World Bank Division Director for Uganda, Kenya, Rwanda, and Somalia, said this low ratio limits government’s capacity to invest in health, education, infrastructure, and social protection, while also undermining the country’s resilience to shocks.

‘This means broadening the tax base, closing loopholes, and ensuring that high-net-worth individuals and large firms contribute their fair share. The Update provides concrete policy options, including reforms to the personal income tax system and strengthening compliance among high-net-worth individuals,’ he said.

Proposed adjustments

The Uganda Economic Update recommends maintaining existing rates for most taxpayers but creating a new 35 percent band for middle-to-upper earners, alongside raising the income tax exemption threshold to Shs4.02m from the current Shs2.82 million.

Currently, government exempts personal incomes under Shs2.82m per annum. But those earning between Shs2.82m and Shs4.02m pay 10 percent, while incomes between Shs4.02m and Shs4.92m are taxed at 20 percent.

Individuals earning between Shs4.92m and Shs120m are taxed at 30 percent, and those above Shs120m pay a 40 percent rate. If adopted, the new reforms would raise the rate for earners between Shs5.82m and Shs120m from 30 percent to 35 percent.

According to World Bank, these measures would generate an additional Shs149b in revenue, equivalent to 0.1 percent of GDP, while protecting low-income earners and improving tax equity.

Government’s concerns

Deputy Secretary to the Treasury, Mr Patrick Ocailap, welcomed the Update but cautioned that the proposed changes could increase the tax burden rather than reduce it.

‘The taxation system must support national savings and encourage enterprise creation, some of which are financed through household savings. Taxing compliant individuals more heavily risks being counterproductive and could worsen household poverty,’ he said.

Mr Ocailap stressed that priority should be given to improving tax administration through digitization, business formalization, regulatory reforms, and expansion of the economy.

He argued that rather than raising taxes on compliant individuals, government should focus on broadening the tax base, including taxation of the online economy.

Tackling loopholes

The World Bank also highlighted significant tax leakages caused by under-reporting and evasion by high-net-worth individuals, recommending linking tax identification numbers to land titles, bank accounts, and company ownership, as well as cutting preferential treatment for groups such as MPs, judicial officers, and military personnel.

These exemptions, it noted, cost the country nearly Shs555.91b annually, or 0.3 percent of GDP.

Data from the Uganda Revenue Authority (URA) shows that despite the number of high-net-worth individuals growing sharply, from 144 in 2019 to 1,359 in 2023, tax collections from this group have been inconsistent.

Collections fell from Shs168.62b in June 2021 to Shs121.21 billion in June 2022, before recovering slightly to Shs130.06b in 2023 and Shs152.72b in 2024.

High-net-worth individuals are defined as those with shareholding in companies with annual turnover of at least Shs40b, net investable assets worth Shs1b, land transactions above Shs1b, annual imports of Shs1b, or ownership of vehicles valued at more than Shs500m.

In its Uganda Economic Update, the World Bank insists that reforming income tax was necessary for Uganda to expand its tax base, improve fairness, and create fiscal space for development spending.

Government, however, remains cautious, warning that raising rates without strengthening administration and broadening the base could undermine savings and investment, while fueling inequality.

Calls grow for reforms to boost Uganda’s revenue base

Meanwhile, the World Bank has urged Uganda to undertake reforms aimed at increasing domestic revenue mobilization, which remains low despite years of policy initiatives.

While launching the 25th Uganda Economic Update in Kampala on Tuesday, the World Bank country director for Uganda, Kenya, and Somalia, Mr Qimiao Fan, said raising more revenue must go hand in hand with improving efficiency in public spending, noting that too much of the budget is consumed by recurrent expenditures, while vital development spending on infrastructure and human capital remains insufficient.

‘Inefficiencies in investment management, procurement, and maintenance reduce value, with only about two-thirds of the capital budget executed each year,’ he said.

The Uganda Economic Update recommends strengthening public investment management, standardizing costs, and rolling out electronic procurement systems across all agencies.

The World Bank estimates that such reforms could save at least 0.5 percent of GDP, while improving education and health spending would create a more productive workforce.

Weaknesses

The Uganda Economic Update also highlights weaknesses in Uganda’s tax system, including unnecessary exemptions of personal incomes of certain groups of people, some of whom are the country’s highest earners.

It further advises adoption of legal and policy reforms to close loopholes and improve transparency, such as mandatory disclosure of major asset ownership, linking tax identification numbers to land titles and bank accounts, and establishing a beneficial ownership registry.

Also, the World Bank recommends that building a centralized wealth database, integrating land, company, customs, and financial data, would also help identify leakages.

The Bank cautioned that tax holidays and exemptions, particularly the 10-year holiday for large firms, have failed to drive significant new investment. Eliminating such incentives could raise at least Shs101.5 billion annually.

Deputy Secretary to the Treasury, Mr. Patrick Ocailap, welcomed the recommendations but stressed that reforms must be carefully assessed to avoid disruptions.

He said emphasis should be placed on improving tax administration, digitization, and formalization of businesses, as well as strengthening local governments’ revenue collection and accountability for fiscal sustainability.

A growing borrowing crisis is exposing a darker truth. For many desperate borrowers, the search for quick cash often ends in financial ruin.

Legal loopholes, predatory lenders, and ignorance of loan agreements are trapping thousands into contracts that strip them of property and dignity.

Lawyer David Mpanga of Dentons Advocates describes how many borrowers unknowingly sign away their assets.

Instead of signing loan agreements, they are pressured into contracts that falsely indicate they have sold their property.

‘When someone wants money, they throw caution to the wind,’ he says, noting that many have signed documents that say they have sold the property when in reality they are only borrowing.

Mpanga says the real danger lies in desperation, which blinds borrowers to obvious risks.

‘Even if you have not gone to school, why are you signing that you have sold when you are borrowing? Worse still, some sign documents they don’t understand,’ he says.

This is made worse by a poor legal direction, which assumes that lawyers know everything.

‘Sometimes we do not, but we pretend we do, and end up misleading clients,’ he says.

A culture of signing blindly

Consumer advocates say ignorance is a key driver of the current ruin that many Ugandans have found themselves in.

Theopista Sekitto Byuma, the executive director of Nshuti, says, ‘a survey across the country showed that 68 percent of Ugandans never read the loan letters they signed’.

‘Out of every 100 borrowers, only 32 had actually understood their obligations,’ she notes.

This culture of signing blindly, Byuma says, throws away financial protection and exposes unsuspecting borrowers.

The regulatory view

Bank of Uganda acknowledges that a dangerous imbalance of knowledge between lenders and borrowers fuels the crisis.

Twinemanzi Tumubweine, the Bank of Uganda director for supervision, says this information gap leaves consumers exposed to exploitation.

‘One of the fundamental issues we have discovered is the significant knowledge gap between financial service providers and consumers. Borrowers often do not fully understand their rights and obligations,’ he says.

Tumubweine stresses that financial services are built on trust, and when ‘it comes to loans or insurance, providers are essentially selling trust’.

‘Consumers hope that service providers will stand with them on their journey to financial independence. That trust is broken when contracts are misleading or when borrowers sign without understanding,’ he says.

Therefore, Tumubweine says there is need to create channels that establish stakeholder partnerships to protect consumers, putting in context insights from consumer complaints and financial literacy initiatives.

Access versus protection

Uganda has made huge progress in financial access, with more than 35 million mobile money users by 2024, but experts warn that access without protection leaves consumers vulnerable.

‘Access alone is not enough,’ Byuma says: ‘Millions of Ugandans are using financial services, but many don’t know where to turn when something goes wrong.’

Mpanga agrees, adding that without protection and literacy, desperation will continue to drive harmful borrowing.

“Bankers may send charming faces to sell loans, but when it’s time to collect, they send the toughest, meanest people. That is how the game is played,’ he says.

A legal and structural problem

Together, the voices of Mpanga, Byuma, and Tumubweine paint a sobering picture.

Uganda’s borrowing crisis is not just financial. It is legal, cultural, and structural.

Desperate borrowers, predatory lenders, poorly trained lawyers, and a weak regulatory environment form a toxic mix that traps consumers in cycles of debt.

The way forward, therefore, lies in law reform, consumer education, and regulatory vigilance.

Borrowers must be empowered to question contracts, lawyers must guide responsibly, and regulators must close loopholes that allow exploitation.

Until then, the borrowing trap will continue to ensnare millions, turning dreams of financial independence into nightmares of lost property and broken trust.