BUDGET REACTIONS: There’s A Delicate Balance Between Revenue And Investment
A 5% withholding tax on interest paid to foreign lenders signals government’s intention to broaden the tax base and capture revenue from cross-border financing arrangements.
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NATIONAL BUDGET READING 2026
Daisy Namayanja: Tax Consultant Bennett Advisory Uganda Ltd
The FY2026/27 National Budget presents a delicate balancing act between stimulating economic growth and raising the domestic revenue required to finance Uganda’s ambitious development agenda. With government projecting domestic revenue collections of sh44.18 trillion and a total budget of sh84.3 trillion, the approved tax measures send a clear message: Uganda is moving towards greater fiscal self-reliance while attempting to protect productive investment and low-income earners.
One of the most notable relief measures is the increase in the PAYE tax-free threshold from sh235,000 to sh335,000 per month. This is a welcome intervention for low-income employees whose disposable incomes have been eroded by rising living costs.
The increase effectively removes more workers from the tax net and provides additional take-home pay to those at the lower end of the income scale. Equally significant is the increase in the VAT registration threshold from sh150m to sh300m annual turnover. This measure reduces the compliance burden on small businesses and allows many SMEs to focus their limited resources on growth rather than administration. It also reflects the Government’s recognition that excessive compliance obligations can discourage formalisation.
However, these relief measures are accompanied by aggressive revenue mobilisation initiatives. The sh200 increase in excise duty on petrol and diesel will inevitably raise transportation and production costs across the economy.
Given that fuel is a key input in virtually every sector, the ripple effects are likely to be felt in consumer prices, logistics, manufacturing and construction.
Similarly, the increased taxes on sugar, cement, alcoholic beverages and imported second-hand clothing (mivumba) are expected to generate substantial revenue while supporting local industry and environmental objectives.
Yet these measures also risk contributing to inflationary pressures, particularly in sectors already facing high operating costs. From a business perspective, the introduction of a 5% withholding tax on interest paid to foreign lenders signals government’s intention to broaden the tax base and capture revenue from cross-border financing arrangements.
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