Of late, two bits of very good news are set to lift the entrepreneurial spirit in Uganda and result in a positive impact on the economy.
First, the government has increased by sevenfold the money allocated to pay for domestic arrears; from a disappointing UGX200 billion in the financial year, 2024/25 to UGX1.4 trillion to be officially confirmed during the reading of the national budget in June. To say the least, the announcement caught many by surprise.
Second, the government is thinking of giving business start-ups, a three-year tax holiday as long as their total capital is below UGX500 million. The proposed measure is scheduled to benefit registered start-ups effective July 2025.
The rising figure for domestic arrears has been a burning issue for the business community. When cash flow is locked up in overly delayed payments, the knock-on effects can leave a business owner in a perilous state.
Local contractors have been particularly hard hit. Some have lost assets used as security for acquiring bank loans so that they can execute government projects. The enormity of not being paid in time is never more painfully felt than when for example, losing your property to auctioneers.
While repeatedly pleading for limited resources, the finance ministry has admitted that paying domestic suppliers and reducing arrears boosts economic activity, strengthens investor confidence, and ensures sustainable fiscal management by avoiding the negative impacts of delayed payments and the accumulation of debt.
Speaking on the issue not long ago, Patrick Ocailap, the Deputy Secretary to the Treasury said, “The consequences (of rising domestic arrears) are far-reaching in that it impacts the operations of small and medium-sized businesses, results in a higher cost of doing business for us and perpetuates the reputation that we are poor fiscal managers and leaders.”
Last year, when contributing to discussions on the 2025/26 National Budget Strategy, the Private Sector Foundation Uganda (PSFU) in its recommendations said the delays had significantly hindered Ugandan companies’ participation in government procurement and contracts with development partners and international organizations.
PSFU Chief Executive Officer, Stephen Asiimwe said, “Additionally, the existing arrears are impacting private-sector access to financing, leading to higher default rates and forcing businesses to rely on expensive money lenders. This situation has adversely affected liquidity, private sector growth, and competitiveness.”
Parliament deserves credit for consistently keeping the issue on the agenda. At the beginning of March, Achia Remigio, the vice chairperson of the Parliamentary Budget Committee called on the government to be more realistic.
The Committee recommended an annual budgetary allocation of UGX1.15 trillion. Remigio said, “The UGX 200 billion allocation is far below the verified arrears, which stand at UGX 14.06 trillion, including UGX 8.312 trillion in reimbursements to the Bank of Uganda and UGX 5.748 trillion in unpaid invoices, pension, and gratuity.”
By increasing the allocation to UGX1.4 trillion, suppliers on the waiting list can at least feel a sense of renewed confidence in the government’s willingness to pay. However, the unpredictability of the whole process remains a worrying point.
Attention now will switch to the finance ministry in regards to the transparency of who gets paid. According to sources, small businesses and suppliers will be given priority, but that’s on paper. In reality, things can be markedly different.
The wonderful thing about the proposed three-year tax relief is that it will give people starting in business some breathing space. It’s an incentive to take a risk. The confidence to innovate then test your ideas, and possibly scale up without feeling the weight of Uganda Revenue Authority (URA) on your shoulders. Entrepreneurship after all is about experimenting.
State minister for finance, Henry Musasizi, said: “The intention is to help businesses to start and grow. We don’t want someone who has just started a business and then URA asks for taxes.”
A tax relief for start-ups could also change attitudes towards business formalization. Findings by the Economic Policy Research Centre (EPRC) show that Uganda has two types of informality, namely legal and fiscal; characterized by the absence of a trading license due to non-registration by the Uganda Registration Services Bureau (URSB) and Local Governments.
Besides legal informality, businesses in Uganda can also be fiscally informal, meaning that they are not registered with URA and hence do not pay taxes. Evidence reveals that 30.1% of informal businesses are not registered with Local Authorities, 91.7% are not registered with URSB, 99.2% are not registered with URA and 26.3% do not have a trading license.
EPRC says the reasons businesses put forward for non-registration include; the perceived high cost of business registration with authorities; lack of incentives to attract businesses to register; poor service delivery within Local Governments and the absence of a supportive policy and legal framework for reducing informality in the country.
The proposed tax measure is a supportive policy because for start-up owners, it substantially reduces initial overhead costs. Not only that, it allows people the time to hone their business skills by seeking out training opportunities in leadership, records-keeping, time management, financial management, and marketing. These are some of the basic skills needed to get your business off the ground.
Against a backdrop of limited opportunities for formal employment, the government and the private sector have been enthusiastically backing numerous entrepreneurship programs, mostly targeting young people.
Tax relief has been the missing link. It has been available for larger local investors, but not small ones. Three years is precious time for self-starters to organize their resources, develop their products or services, and hopefully achieve business stability before the tax collector knocks on the door.
