The Ugandan government has proposed several tax changes for the 2025/26 financial year that could significantly impact businesses across multiple sectors.
These proposals aim to boost investment, improve cash flow, and make taxation fairer and more predictable.
If approved, they could benefit manufacturers, real estate developers, small businesses, and technology firms, among others. However, some sectors may also face stricter tax enforcement measures.
For businesses operating in Uganda, understanding these proposed tax changes is crucial for effective planning, compliance, and long-term sustainability. This article explores the key changes, their potential impact on businesses, and what companies should do to prepare.
Key Tax Proposals and Their Impact on Businesses
One of the biggest tax challenges for businesses in Uganda has been delayed Value Added Tax (VAT) refunds. Many businesses, particularly exporters and manufacturers, often wait over a year to receive VAT refunds, affecting their cash flow and ability to reinvest.
To address this, the government plans to accelerate VAT refunds by reducing audit delays. If this proposal is implemented, businesses will have better liquidity and improved operational efficiency. However, companies should also prepare for stricter compliance measures to ensure that refunds are processed faster without fraud risks.
Another significant proposal is the increase of the VAT registration threshold from UGX 150 million to UGX 500 million. This means businesses earning less than UGX 500 million annually will not be required to register for VAT, reducing their tax burden.
This change is expected to benefit small and medium enterprises (SMEs), which often struggle with tax compliance costs. By exempting them from VAT, the government hopes to encourage growth and formalization in the SME sector.
Businesses close to this threshold should evaluate their annual turnover to determine whether they will qualify for exemption.
Real estate developers have long faced high taxation, which has driven up the cost of housing in Uganda. The new tax proposals include allowing VAT refunds for real estate developers, which would reduce the cost of construction and encourage the development of more affordable housing.
Additionally, the government is considering removing the 6% withholding tax on payments made by companies in the real estate sector. If approved, this change could significantly reduce costs for developers and increase investment in the housing market.
Currently, businesses importing machinery and equipment worth less than USD 4,000 must pay VAT upfront, which can be a financial burden, especially for startups and small manufacturers.
The government proposes lowering this threshold to USD 2,000, allowing more businesses to defer VAT payments.
This change will enable smaller manufacturers and startups to import essential equipment without immediate tax obligations, helping them scale up more quickly. Businesses in the manufacturing sector should assess their equipment import plans to take advantage of this tax relief.
The oil and gas sector is expected to benefit from an extension of VAT deeming along more parts of the supply chain. This move will ease cash flow constraints for businesses involved in oil and gas projects by allowing them to claim VAT deductions on supplies.
For businesses operating in this sector, this change could improve profitability and make investment in Uganda’s oil and gas industry more attractive. Companies should assess how these changes will affect their contracts and financial planning.
The Business Process Outsourcing (BPO) sector in Uganda faces a unique challenge as it is currently the only country in East Africa that charges VAT on salary disbursements in this industry.
The government is now considering removing this VAT, which would lower operating costs for BPO firms and attract more international investors.
This change could position Uganda as a regional hub for BPO services, creating more jobs and economic opportunities. Businesses in this sector should prepare for potential expansion and increased competition.
The agriculture sector could benefit from tax exemptions on key financial transactions. The government proposes exempting farmers from the 15% withholding tax on non-resident payments and allowing them to recover 18% VAT on imported services.
Additionally, the fish maw industry, which faces high export levies, could become more competitive if tax rates are reduced. Businesses in agriculture and exports should track these changes to adjust pricing and investment plans accordingly.
The government is reviewing taxation on the digital economy, with proposals to reduce excise duty on internet data from 12% to 6%. This would lower internet costs and make online businesses more viable.
The government is also considering eliminating the 0.5% tax on mobile money withdrawals and reducing the 15% duty on transaction fees to 5%, making digital transactions more affordable. For e-commerce businesses and digital service providers, these changes could lead to increased customer spending and greater business growth.
To reduce transportation costs, the government proposes cutting import duties on goods vehicles from 25% to 15%. This would lower costs for logistics and transport companies, making goods transportation more affordable.
In addition, electric and hybrid vehicle buyers could benefit from a 0% import duty, encouraging the adoption of eco-friendly transport solutions. Businesses in the automotive and logistics sectors should explore how these changes can reduce operational costs.
Challenges Businesses Should Watch Out For over these tax changes
While the proposed tax changes offer several benefits, businesses must also prepare for potential challenges, including stricter tax compliance enforcement.
The Uganda Revenue Authority (URA) is expected to increase enforcement measures, particularly in real estate, the scrap industry, and fast-moving consumer goods. Businesses should ensure that their tax records are accurate and up to date to avoid penalties.
There is also the uncertain implementation timeline. Although these proposals have been introduced, businesses must wait for parliamentary approval before implementation. It is crucial to stay informed about any modifications or delays in execution.
Additionally, some of the tax cuts, particularly in VAT and excise duties, could reduce government revenue. If revenue collection falls short, the government may introduce alternative tax measures in the future. Businesses should be prepared for possible tax adjustments in later financial years.
How Businesses Should Prepare amidst proposed tax changes
To navigate these changes effectively, businesses should monitor legislative updates and stay informed about the final tax laws passed by Parliament to ensure compliance.
Engaging tax professionals is essential to understand how the new tax laws will affect operations and take advantage of available incentives.
Businesses should also plan activities to maximize tax benefits, such as utilizing VAT deferment for equipment purchases or claiming deductions in eligible sectors.
It is important to plan for compliance costs by ensuring financial records and tax filings are accurate to avoid penalties and benefit from faster VAT refunds.
Uganda’s proposed tax changes for the 2025/26 financial year present both opportunities and challenges for businesses.
The reforms aim to reduce tax burdens, improve cash flow, and attract investment. However, stricter compliance enforcement means businesses must be proactive in ensuring tax compliance.
By staying informed, planning ahead, and leveraging available tax incentives, businesses can position themselves for success in the evolving tax landscape.
The government’s ultimate goal is to create a fair and efficient tax system that promotes economic growth while ensuring sustainable revenue collection. Businesses that adapt quickly to these changes will be better positioned for growth and profitability in the coming financial year.