By Alice Nalweera
Uganda is planning to increase public spending by 12.7 percent in Financial Year (FY) 2026/27, bringing the total budget to Shs78.2 trillion, according to the Ministry of Finance, Planning and Economic Development. To help fund this, the government proposes raising an additional Shs4.8 trillion in domestic revenue, a push that is both timely and necessary as borrowing from abroad becomes harder and more expensive.
However, this ambition raises an important question: can Uganda raise this much money without slowing down the economy? The real issue is not just how much can be raised, but how it is raised and at what cost. Taxes are not neutral. Depending on their design, they can encourage growth or stifle it.
The proposed tax package is broad and far-reaching, targeting both income and consumption. It includes an increase in the top PAYE rate to 40 percent for individuals earning above Shs10 million per month, alongside a Shs200 per litre increase in fuel duty. Excise duty on sugar is set to rise from Shs100 to Shs300 per kilogram, while a new 5 percent tax will be introduced on capital gains from non-business assets.
Additional measures include higher taxes on construction materials such as cement, tiles, and paints, as well as an increase in excise duty on motorcycles at first registration from Shs200,000 to Shs500,000. A 0.5 percent withholding tax is also proposed on agricultural supply payments exceeding Shs1 million.
At the same time, the government has introduced measures aimed at easing compliance, including raising the VAT registration threshold from Shs150 million to Shs250 million to benefit small businesses and replacing Tax Identification Numbers with National Identification Numbers to improve tax administration and compliance.
There are clearly positive elements within the proposed measures. Relying more on domestic revenue, rather than external borrowing, is a positive step towards economic self-reliance. Some of the measures also reflect a fairer approach to taxation. Asking higher earners to contribute more through an increased top PAYE rate is a welcome signal, and raising the tax-free income threshold means lower-income workers will keep a little more of what they earn. Raising the VAT registration threshold also gives smaller businesses some breathing room.
That said, several measures in the package carry real risks. Fuel taxes are a good example. As a core input for transport, farming, manufacturing, and nearly every other sector, when fuel becomes more expensive, the cost of doing business goes up, prices rise across the board, and ordinary households feel the squeeze.
The proposed taxes on construction materials tell a similar story. Items like cement, tiles, and paints are not luxuries—they are basic building requirements for roads, homes, and factories. Making them more expensive could slow down construction, delay projects, and raise the cost of the very infrastructure Uganda needs to grow.
Small and medium businesses also face a mixed picture. While the higher VAT threshold gives small firms some short-term relief, there is a risk that businesses could deliberately stay small or stay in the informal sector to avoid crossing into higher tax territory. This would work against efforts to bring more businesses into the formal economy.
The proposed excise duty increase on motorcycles at first registration from Shs200,000 to Shs500,000 also deserves attention, given how central boda bodas are to transport and livelihoods across the country. Higher entry costs could push out low-income riders trying to earn a living.
The increase in the top PAYE rate may also yield less than expected. Higher earners often have more flexibility to rearrange their finances to reduce their tax burden, meaning anticipated revenue gains may not fully materialise. A heavier tax on earnings can also reduce the motivation to work harder—the opposite of what a growing economy needs.
These concerns point to a broader issue. Not all taxes affect the economy equally, and taxes on essential goods tend to hurt the most. A better path may lie in collecting existing taxes better, not piling on new ones. Strengthening the Uganda Revenue Authority (URA) through digital tools, better data systems, and a review of tax exemptions could unlock significant revenue without piling more burden on businesses and households that are already contributing.
Uganda’s ambition to raise more domestic revenue is both justified and necessary. Whether these taxes will slow down or spur growth depends on how carefully the measures are designed. The Shs4.8 trillion target is achievable but only if the right choices are made. The current package has promise but leans too heavily on taxes that hurt businesses and households.
If the government is committed to revenue and growth, it should look harder at improving tax collection, closing loopholes, and reducing exemptions before adding new levies. Meeting the revenue target matters. But keeping the economy healthy enough to keep generating that revenue matters just as much.
The author is an Economics Fellow at Blueprint Consortium Africa and Assistant Lecturer at the School of Economics, Makerere University.
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