East Africa’s quest for sustainable economic growth and development hinges on the ability of governments to effectively mobilize domestic revenue.
East African countries still grapple with underdeveloped tax systems, growing informal economies, and limited tax compliance. This has forced many countries to embark on ambitious tax reforms.
Such reforms are designed not only to boost government revenue but also to foster economic resilience, encourage investment, and enhance service delivery.
Uganda and Kenya are emerging as champions in the drive for tax reform and modernization in East Africa, leading the way in enhancing domestic revenue mobilization and advancing the region’s tax policy frameworks.
Uganda and Kenya have made significant strides in overhauling their tax systems to boost revenue generation, improve tax compliance, and position themselves as competitive players in the global economy. Both nations of recently committed to reducing reliance on external funding by increasing their tax-to-GDP ratios, which, for many African countries, have historically been low.
As of recent estimates, Uganda’s tax-to-GDP ratio stands at approximately 13%, while Kenya’s tax-to-GDP ratio stands around 16%.
Despite the fact that these ratios are relatively higher than many of the other economies in sub-Saharan Africa, they remain insufficient for funding the large-scale infrastructure projects, social services, and other developmental needs that both countries require. Thus, tax reform has become a crucial area of focus for both governments, as they seek to build more resilient economies.
Uganda has embarked on a significant journey to modernize its tax system, focusing on broadening the tax base, improving compliance, and enhancing the effectiveness of the Uganda Revenue Authority (URA).
The country’s growing economy and youthful population underscore the urgent need for comprehensive tax reforms that ensure fiscal sustainability.
One of the central pillars of Uganda’s tax reform has been the introduction of the Electronic Fiscal Receipting and Invoicing System (EFRIS). This system, which mandates businesses to issue digital invoices for taxable transactions, allows the URA to monitor tax compliance in real-time.
By automating the invoicing process, Uganda aims to minimize tax evasion and underreporting, particularly in sectors where informal business activities are prevalent. EFRIS has proven to be effective in improving VAT collection, thereby addressing the historical leakage in Uganda’s tax system.
Additionally, Uganda has taken bold steps to address tax evasion through the Digital Tax Stamps (DTS) initiative. These stamps allow the URA to track the movement of taxable goods in real-time, ensuring that taxes are paid on every product before it reaches the consumer.
The system is especially important in sectors like tobacco, alcohol, and pharmaceuticals, where counterfeiting and tax evasion have been widespread.
By implementing the DTS, Uganda aligns itself with global best practices in digital tax administration, setting a standard for modernizing tax enforcement in Africa. Furthermore, Uganda has expanded its VAT base, tightening enforcement measures to ensure businesses that operate informally are captured within the tax system.
A critical challenge that Uganda faces is taxing the informal economy, which constitutes a substantial portion of the country’s economic activities.
In response, the Voluntary Disclosure Program (VDP) has been introduced, encouraging businesses in the informal sector to formalize and register with the URA.
This initiative, alongside the requirement for registered businesses to acquire a Tax Identification Number (TIN), represents a significant effort to integrate the informal economy into the formal tax system.
The 2025/26 Tax Amendments will further simplify tax registration for informal businesses, enhancing Uganda’s ability to capture income that was previously untaxed.
Recently, Uganda has also turned its attention to the growing digital economy. Through its Digital Services Tax (DST), the government targets multinational companies that operate through digital platforms.
Foreign companies like Uber, Netflix, and Amazon, which generate substantial revenue from Ugandan consumers but have no physical presence in the country, are now subject to taxation. This digital tax not only ensures that Uganda benefits from the services provided by these global players but also brings the country in line with global tax reforms that seek to address the challenges of taxing the digital economy.
Moreover, Uganda has strengthened its international tax cooperation by signing the Automatic Exchange of Information (AEOI) agreement with the OECD.
This agreement enables Uganda to exchange financial account information with other countries, facilitating the identification of Ugandan taxpayers who may be hiding income or assets in foreign jurisdictions.
The AEOI represents a commitment to greater transparency and aligns Uganda with global efforts to combat tax evasion and illicit financial flows. These combined measures—digital tax initiatives, tax amnesty programmes, and international tax cooperation—illustrate Uganda’s progressive tax agenda, aimed at increasing revenue mobilization and improving tax compliance across the country.
Kenya, on the other hand, as East Africa’s largest economy, has long been recognized for its forward-thinking approach to tax reform. The Kenya Revenue Authority (KRA) has consistently championed digital tax solutions, and the introduction of the e-tax system marked a milestone in Kenya’s modernization of tax administration. The e-tax platform allows individuals and businesses to file their returns, make payments, and track their tax obligations online.
This digital solution simplifies tax processes, reduces administrative burdens, and increases the efficiency of tax collection. Kenya’s early adoption of digital tax tools has not only streamlined the system but also positioned the country as a leader in tax innovation within East Africa.
Kenya has also made significant strides in taxing the digital economy, particularly through the introduction of the Mobile Money Tax.
With mobile money platforms such as M-Pesa playing a central role in the Kenyan economy, the government has created a tax structure to ensure that this booming sector contributes to national revenue.
The Turnover Tax (TOT), introduced for small and medium-sized enterprises (SMEs), is another example of Kenya’s efforts to simplify taxation for businesses, particularly those with an annual turnover of up to KSh 5 million. This system allows SMEs to pay a fixed percentage of their gross income, thus encouraging them to formalize their operations and comply with tax regulations. The introduction of TOT, alongside other measures, has been instrumental in expanding Kenya’s tax base and improving revenue collection.
In addition to the success of the e-tax system and mobile money taxation, Kenya has made efforts to address the growing importance of the digital economy in its tax reforms. The Digital Services Tax (DST) was implemented to ensure that multinational companies such as Uber, Airbnb, and global e-commerce platforms contribute their fair share to Kenya’s economy.
This move aligns with international trends, particularly OECD guidelines on taxing the digital economy. By taxing foreign companies that generate revenue from Kenyan consumers but lack a physical presence in the country, Kenya ensures that these companies contribute to national development.
Kenya’s tax reforms are not limited to national initiatives but also extend to regional integration efforts. As a member of the East African Community (EAC), Kenya is actively participating in efforts to harmonize tax systems across the region.
The EAC is working towards aligning VAT rates and simplifying cross-border taxation to facilitate trade, investment, and economic integration.
Kenya’s leadership in advocating for tax policy harmonization within the EAC sets a positive example for other member states, ensuring that the region moves towards a more unified economic framework.
Kenya’s proactive use of digital tax solutions and its alignment with regional tax harmonization efforts are laying the foundation for a more integrated East African economy.
As two of the region’s largest and most dynamic economies, both countries have set the stage for greater tax integration, better compliance, and a more competitive business environment. Their tax reforms are particularly relevant to the East African Community (EAC), where harmonizing tax policies across the region will reduce barriers to trade, enhance cross-border investment, and promote economic integration.
The writer is a chartered Tax Accountant, analyst, and international tax advisor