Uganda’s drive to boost domestic revenue mobilization has taken centre stage in the 2025/26 financial year, with government introducing a number of tax reforms.
These are aimed at widening the tax base, reducing reliance on external borrowing, and financing national development priorities under the Fourth National Development Plan (NDP IV).
While these reforms are intended to create a more self-sustaining economy, small businesses across the country are beginning to feel the ripple effects some positive, others more challenging.
The 2025/26 national budget, themed “Sustaining Economic Recovery and Inclusive Growth,” earmarked UGX 32.3 trillion in projected tax revenue, accounting for about 74% of the total resource envelope.
This shift toward domestic financing is part of a broader government strategy to reduce fiscal deficits and fund priority sectors such as agro-industrialization, infrastructure, education, and healthcare.
However, achieving this goal largely depends on improving tax compliance, especially among small and informal businesses, which make up the majority of Uganda’s enterprise landscape.
One of the key policy shifts is the expansion of the presumptive tax regime. Under the new framework, businesses with annual turnover between UGX 10 million and UGX 150 million are now required to pay a simplified fixed tax based on turnover bands.
While the intention is to make tax payment more predictable and easier to administer, many small business owners argue that the new rates don’t reflect their profit margins or seasonal cash flow fluctuations.
For micro enterprises operating on the edge of survival, even a small increase in fixed tax obligations can threaten operations.
Additionally, the Uganda Revenue Authority (URA) has intensified its digital tax enforcement through systems like the Electronic Fiscal Receipting and Invoicing System (EFRIS). Businesses are now required to issue electronic receipts and file real-time transaction data with URA.
While this move promotes transparency and reduces tax evasion, many small traders, especially in rural and peri-urban areas, lack the digital infrastructure, training, or internet connectivity to fully comply.
For these businesses, transitioning to a fully digitized tax system has added pressure without the corresponding support mechanisms.
On the flip side, URA and the Ministry of Finance have rolled out various taxpayer education campaigns and incentives to ease the burden.
These include online training programs, simplified taxpayer registration for small businesses, and the introduction of mobile tax services to support remote areas. There is also a continued push to formalize informal businesses, offering them access to government procurement opportunities, credit facilities, and legal protections once registered and compliant.
Small businesses that are part of cooperative societies or SACCOs have seen some benefits. Government has maintained tax exemptions for incomes earned by registered SACCOs, which helps these groups retain earnings for reinvestment.
However, SACCOs themselves are under pressure to improve transparency and regulatory compliance, especially in light of recent audits that revealed financial mismanagement in some cooperative institutions.
One of the more controversial reforms is the gradual phasing out of some tax exemptions, especially for small manufacturers and start-ups in the urban informal economy.
Critics argue that this may discourage entrepreneurship or push more businesses into the shadows.
However, government maintains that the rationalization of tax exemptions is necessary to create a fairer and more equitable tax system.
Instead of blanket exemptions, future support will likely be more targeted favoring businesses that demonstrate job creation, innovation, or alignment with national development goals.
The introduction of digital service taxes also poses new concerns for small online entrepreneurs and content creators.
Those earning income through social media platforms, digital marketplaces, or freelance services are now required to register and file tax returns.
While this move aims to capture revenue from the growing digital economy, it also demands a level of tax literacy that many informal digital workers do not yet have.
In the bigger picture, Uganda’s efforts to boost domestic revenue mobilization are necessary for sustainable development.
With external debt levels rising and donor funding becoming less predictable, increasing local tax collection is a strategic priority.
However, this must be balanced with the realities facing small business owners, who already contend with limited access to credit, unstable supply chains, and high operating costs.
For the 2025/26 fiscal year, the challenge will be ensuring that tax reforms do not stifle small enterprise growth but instead create a supportive ecosystem where formalization is rewarded, compliance is practical, and government services offer real value in return for taxes paid.
If implemented with fairness, flexibility, and strong communication, Uganda’s revenue strategy can support both national development and entrepreneurial resilience.
Ultimately, the success of these reforms will depend on continued dialogue between government agencies, local governments, business associations, and grassroots entrepreneurs.
As small businesses adapt to the changing tax environment, they will need more than just policy, they will need practical tools, mentorship, incentives, and digital infrastructure to thrive in Uganda’s evolving economic landscape.
