The Uganda income tax reforms proposed by the World Bank recommend creating a new 35 percent tax band for individuals earning between Shs5.82 million and Shs120 million annually. Uganda’s tax-to-GDP ratio remains low at just over 13 percent, below both the regional average and the government’s 18 percent target. Consequently, Mr. Qimiao Fan, World Bank Division Director for Uganda, Kenya, Rwanda, and Somalia, said this limits the government’s ability to invest in health, education, infrastructure, and social protection. It also reduces the country’s ability to withstand economic shocks.
The World Bank urges broadening the tax base, closing loopholes, and ensuring high-net-worth individuals and large firms pay their fair share. Additionally, the 25th Uganda Economic Update proposes keeping current rates for most taxpayers but adding the new 35 percent band for middle-to-upper earners. It also recommends raising the income tax exemption threshold from Shs2.82 million to Shs4.02 million. Currently, incomes under Shs2.82 million are exempt. Incomes between Shs2.82 million and Shs4.02 million pay 10 percent. Incomes from Shs4.02 million to Shs4.92 million pay 20 percent. Individuals earning between Shs4.92 million and Shs120 million pay 30 percent. Those above Shs120 million pay 40 percent. The new reforms would increase the rate for earners between Shs5.82 million and Shs120 million to 35 percent. As a result, this could generate Shs149 billion in additional revenue, or 0.1 percent of GDP.
Government officials welcomed the recommendations but warned of risks. Deputy Secretary to the Treasury, Mr. Patrick Ocailap, said higher taxes on compliant individuals could reduce savings and investment. Therefore, he called for improving tax administration through digitization, formalizing businesses, regulatory reforms, and broader taxation of the online economy.
The World Bank highlighted tax leakages caused by under-reporting and evasion by high-net-worth individuals. Moreover, it recommended linking tax identification numbers to land titles, bank accounts, and company ownership. Exemptions for MPs, judicial officers, and military personnel cost Uganda nearly Shs556 billion annually. High-net-worth individuals increased from 144 in 2019 to 1,359 in 2023. Yet, collections remain inconsistent, falling from Shs168.62 billion in June 2021 to Shs121.21 billion in June 2022. Collections rose slightly to Shs152.72 billion in 2024.
The Uganda Economic Update stressed that reforming income tax is crucial to expand the tax base, improve fairness, and create fiscal space for development spending. Meanwhile, raising revenue must come with efficient public spending, as much of the budget goes to recurrent costs. In contrast, critical infrastructure and human capital projects remain underfunded. Strengthening public investment management, standardizing costs, and implementing electronic procurement systems could save at least 0.5 percent of GDP. Additionally, these measures would improve education and health outcomes.
Uganda’s tax system still has weaknesses, including unnecessary exemptions for high earners and ineffective tax holidays for large firms. Consequently, the World Bank recommends mandatory disclosure of major assets, creating a centralized wealth database, and a beneficial ownership registry to reduce leakages. Removing ineffective incentives, such as 10-year tax holidays, could raise Shs101.5 billion annually.
Deputy Secretary Ocailap emphasized careful assessment of reforms to avoid disruption. He also called for digitization, formalization of businesses, and strengthening local government revenue collection. These steps ensure fiscal sustainability. Therefore, the proposed Uganda income tax reforms aim to create a fairer system, increase government revenue, and fund critical development projects.
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