Uganda is facing a delicate economic balancing act. The steps needed to keep prices stable today could have consequences for how much tax government collects tomorrow. On 14 October 2026, Bank of Uganda raised the Central Bank Rate from 9.75% to 12%. This followed growing concerns about inflation, higher fuel costs and pressure on the Uganda shilling. The Cash Reserve Requirement had also increased from 11% to 13.5%, effectively reducing the amount of money available within the banking system for lending.
The reasoning is understandable. When the shilling weakens, Ugandans need more shillings to buy the same amount of dollars. For a country that imports fuel, machinery, medicines, raw materials and many everyday products, that matters. A weaker shilling means many of these imports become more expensive. Businesses then face higher costs, and some of those costs eventually find their way into the prices paid by consumers.
This is partly why Bank of Uganda has acted. Headline inflation had already risen from 4.1% in August to 4.6% in September 2026. The concern is that if rising prices are allowed to spread across the economy, inflation can become much harder to control.
But there is another side to the story that deserves equal attention: what could the measures needed to contain inflation today mean for tax collections tomorrow? The connection may not be obvious, but it is actually quite simple.
Take an ordinary Ugandan business that imports some of its products or raw materials, employs people and has a bank loan. A weaker shilling means it needs more money to pay its foreign suppliers. At the same time, fuel and transport costs may rise. If borrowing also becomes more expensive or credit becomes harder to access, that business is squeezed from several directions.
The owner has limited choices. Increase prices, accept a smaller profit, cut costs, borrow more or postpone planned investment. Whichever decision is taken, there can be a tax consequence.
This is because government ultimately collects taxes from economic transactions. A profitable company pays corporate income tax. An expanding company employs more people who contribute PAYE. When consumers spend, VAT and other consumption taxes are generated. When businesses import, customs duties and import VAT may arise.
A weakening shilling presents an interesting situation for tax revenue. In the short term, depreciation can actually make some tax collections look better. For example, if an importer brings in goods worth USD100,000, the Uganda shilling value of those goods increases as the shilling depreciates. Where border taxes are linked to customs value, subject to the applicable rules, the tax payable in shilling terms may consequently rise.
That may initially look like good news for revenue collections. However, we need to look beyond the first transaction.
If the importer now needs substantially more shillings to bring in exactly the same goods, what happens to the next shipment? The business might import less. It may increase prices. Consumers may buy less. Profit margins may shrink.
The tax authority might therefore collect more shillings from today’s transaction but eventually have fewer transactions to tax tomorrow. Higher tax collections caused by rising prices or a weaker currency are not necessarily the same thing as growth in the underlying tax base.
The same story eventually reaches the ordinary household. A family whose income has not increased but which is spending more on fuel, transport, food and other basic needs has to adjust elsewhere. Perhaps it postpones buying new furniture, delays building a house, eats out less often or puts off buying another capital asset.
For one household, that may seem insignificant. Across thousands of households, however, it matters. One person’s decision not to spend becomes another business’s lost sale. When many customers cut back, businesses sell less, profits come under pressure and tax collections can eventually feel the impact.
Investment presents a similar challenge. A business considering opening another branch, expanding a factory or buying machinery may think twice if borrowing becomes significantly more expensive. The investment may not be cancelled. It may simply be postponed. But when investment is postponed, so too are some of the jobs, purchases, profits and taxes that the investment would have generated.
This leads to a simple point: tomorrow’s tax revenues are partly created by today’s business decisions.
None of this means that Bank of Uganda should not act against inflation. The opposite is true. High and persistent inflation hurts households, reduces purchasing power and makes it difficult for businesses to plan. Allowing inflation to run unchecked could ultimately cause even greater damage to the economy and tax collections.
The issue is therefore not about choosing between controlling inflation and collecting taxes. Uganda needs both. The real question is how we can restore monetary stability without unnecessarily weakening the businesses and households that form the country’s tax base.
This is where monetary, fiscal and tax policies need to work together.
During periods when businesses are facing pressure from the exchange rate, borrowing costs and weaker consumer demand, efficient tax administration becomes even more important. Legitimate tax refunds should be processed efficiently. Tax disputes should not remain unresolved unnecessarily. Businesses should have reasonable certainty about their tax obligations. None of this means lowering compliance standards. It simply means recognising that cash trapped unnecessarily outside a business cannot finance its next order, salary or investment.
There is also a broader lesson for Uganda’s domestic revenue ambitions. Sustainable revenue growth cannot come indefinitely from asking the same taxpayers to contribute more. It must increasingly come from having more businesses succeeding, more businesses becoming formal, more investment taking place and more Ugandans earning taxable incomes.
A strong tax authority therefore needs strong taxpayers.
The best taxpayer is not necessarily the business from which government collects the most today. It is the business that survives today’s pressures, expands tomorrow, employs more Ugandans, makes more sales and continues paying taxes for many years.
Uganda certainly needs a stable shilling, manageable inflation and stronger tax collections. But these objectives ultimately depend on the same thing: a healthy economy. We should not measure success only by the inflation number or by how much tax is collected this year. The bigger test is whether businesses are still investing, employing and growing. Because when businesses grow, the tax base grows with them and more taxes are collected.
