On 1 April 2026, the Ministry of Finance, Planning and Economic Development tabled the Income Tax (Amendment) Bill, 2026 before Parliament, signaling a major shift in Uganda’s approach to taxing income. If passed, these changes will take effect on 1 July 2026 and will significantly reshape how both individuals and businesses are taxed.
At its core, the Bill reflects a policy direction aimed at broadening the tax base, minimizing tax avoidance, and securing more predictable revenue streams.
Historically, Uganda’s income tax system has largely been profit-based. Businesses are taxed on chargeable income, meaning that where losses are reported, no tax is payable. While this aligns with global tax principles, it has created room for prolonged tax avoidance, particularly where companies continuously declare losses over several years.
The current law also limits withholding tax on asset disposals mainly to business assets, leaving non-business transactions such as personal land sales largely outside advance taxation mechanisms. In addition, digital transactions, especially software-related payments, have not been fully captured under the traditional definition of royalties.
The Ministry now proposes a series of bold reforms. One of the most significant is the introduction of a minimum tax of 0.5% on gross income for taxpayers who have declared losses for at least seven years. This represents a fundamental shift from taxing profits alone to ensuring that economic activity itself is taxed.
Further, the Bill proposes to extend withholding tax at 6% to non-business asset disposals, requiring buyers to deduct and remit tax on behalf of sellers. This effectively brings individuals more firmly into the tax net.
Another critical proposal is the expansion of the definition of royalties to include software, meaning that payments for software will now attract withholding tax, increasing the tax burden on businesses reliant on imported digital tools.
The Bill also introduces several new withholding taxes, including taxes on betting winnings, telecom commissions, and public entertainers, thereby expanding the tax net into previously under-taxed sectors.
On the incentive side, the Ministry proposes income tax exemptions for large-scale tourism investors, provided they meet strict local content requirements, including employment and sourcing thresholds. This reflects a targeted approach to attract investment while promoting domestic economic participation.
If passed, the impact will be far-reaching. For businesses, especially those in capital-intensive sectors, the minimum tax will create cash flow pressures, even in years of genuine losses. SMEs and startups may find it particularly difficult to cope during early growth stages.
For individuals, the extension of withholding tax to non-business assets will mean earlier tax payments, reducing liquidity during major transactions such as land sales.
At a broader level, Uganda’s tax system will become more aggressive, more inclusive, and more difficult to navigate without proper planning. The informal sector will increasingly be drawn into the formal tax net, while compliance will become more data-driven and unavoidable.
In essence, if passed, this Bill marks the beginning of a new tax era where earning income is no longer the only trigger for taxation, but participation in economic activity itself becomes taxable.
