The Ministry of Finance, Planning, and Economic Development (MoFPED) has released a comprehensive cost-benefit and causal analysis of Uganda’s 10-year Corporate Income Tax holidays for strategic investors and exporters.
The April 2026 report examines whether these incentives generate sufficient economic returns to justify their cost, especially in a revenue-constrained environment.
“At an aggregate level, the tax holiday regime is economically beneficial,” the report finds, although its effectiveness varies significantly across different categories of beneficiaries.
For strategic investors, classified under CITE 4, the results are relatively strong. The average Benefit-Cost Ratio stands at 2.49, meaning that every UGX 1 of revenue forgone generates UGX 2.49 in economic benefits.
Exporters, under CITE 5, also show positive returns, though at a lower level, with a Benefit-Cost Ratio of 1.85.
However, “the fiscal trade-off remains evident.”
While these incentives drive firm expansion, the resulting tax revenues are often limited and do not grow proportionately with increases in firm sales.
The report highlights clear differences in performance across sectors.
Manufacturing emerges as the strongest beneficiary, with a Benefit-Cost Ratio of 5.49, reflecting significant gains through value addition, strong linkages, and improved productivity.
Export agriculture also performs well, with a ratio of 4.78, supporting national ambitions for long-term economic growth.
In contrast, construction delivers almost no measurable return, with a ratio of 0.02, suggesting that many of these investments would likely have occurred even without incentives.
Transport and storage record a ratio of 0.00, pointing to a “significant fiscal leakage” with minimal economic impact, including the creation of only eight jobs.
Other service sectors also underperform, with a modest ratio of 0.42, indicating weak economic multipliers.
Beyond sector performance, the analysis explores how these incentives influence firm behavior.
Tax holidays are associated with “strong and sustained increases in sales,” alongside modest improvements in capital investment for strategic firms.
However, they do not show a clear causal impact on export performance, which raises questions about their effectiveness in driving international competitiveness.
A notable concern is local sourcing.
Many firms fall short of the 70 percent local input benchmark and, in some cases, increase their reliance on imports instead of strengthening domestic supply chains.
Employment outcomes present a mixed picture.
The regime is associated with over 17,000 jobs, including 12,600 from strategic investors and 4,700 from exporters.
While most firms meet the statutory requirement of 70 percent Ugandan employees, they do not consistently outperform comparable firms that do not benefit from the incentives in terms of job creation intensity.
In light of these findings, the report calls for “a shift toward a more targeted and performance-driven approach.”
It recommends retaining incentives for high-impact sectors such as manufacturing and agro-processing while phasing them out in low-impact areas like construction and transport.
It also proposes linking tax benefits to measurable outcomes, including export growth, job quality, and local sourcing levels.
Another key recommendation is to replace long-duration tax holidays with shorter, time-bound incentives that provide early support and gradually reduce over time.
The report further emphasizes the need to strengthen domestic supply chains by complementing tax incentives with supplier development programs.
Improved monitoring is also critical, with proposals for annual performance reviews and the automatic withdrawal of incentives from underperforming firms.
In conclusion, while Uganda’s tax holiday regime supports firm-level growth, the Ministry underscores the need to refine its design.
As the report notes, these incentives are ultimately “public resource transfers,” and their value must be measured not just by business expansion, but by their contribution to broader structural transformation and sustainable national development.
