Uganda’s rising tax burden and flimsy justification

 

In 2025, I spoke with NBS journalist Hakim Wambamba in an interview that was later broadcast on NBS Live at 9 on June 13, 2025. It’s time to reaffirm my exact message. I emphasized that when the government funds its spending by increasing the tax burden, whether through new taxes or raising existing ones, it indicates wasteful and ineffective government spending. Conversely, economic growth resulting from government expenditure would naturally widen the tax base through invention and innovation, without the need to raise taxes.

In FY 2025/26, the government aimed to raise about Shs 538.6 billion from new taxes. In the following FY 2026/27, it plans to collect an additional Shs 4.8 trillion from new taxes through revenue enhancement and compliance measures. Without a microscope, the message is clear: the government intends to raise money from private individuals and institutions to pay for goods and services provided by the state. Elsewhere, I have emphasized that raising the tax burden is not the same as increasing revenues. The former is the most targeted, yet the latter is the most mentioned in both government documents and speeches.

Before addressing the cause of the ever-increasing tax burdens, the phrase tax-to-GDP, which suggests the tax burden, has been used somewhat vaguely as a loose justification for raising taxes, often claimed to be low compared to the average across sub-Saharan Africa of about 16.1%. However, the term tax-to-GDP deserves more careful consideration because it does not accurately reflect the economic incidence of the tax burden. Using GDP as the denominator also misrepresents available resources by overstating the income truly accessible for private consumption and investment.

Aside from the flimsy justification of a relatively lower tax burden compared to its peers, Uganda’s unsustainable public policies involving several spend-to-grow strategies have increased pressure on government spending, with government expenditure growing faster than the national output since 2022, reaching 29.4% in 2024. Similarly, this has put comparable pressure on government revenues, even though history shows that public expenditure and revenues tend to be uneven over time. Therefore, the tax burden will need to be increased because it is particularly important, as all current and capital expenditure by the government is financed through taxes, borrowing, or both.

As I conclude, increasing the tax burden may require multiple considerations since its effects might not be immediate. Raising taxes as the main method for funding government expenses has significant economic consequences that go beyond short-term revenue gains. It risks limiting private sector activity, which is the key drivers that expand the tax base. Over time, this could slow economic growth, increase tax avoidance, and deepen informality, ultimately undermining sustainable revenue collection. The broader implication is that without controlling spend-to-grow policies and restraining government spending, Uganda may continue experiencing cycles of tax hikes, fiscal pressures, and sluggish economic growth.