How will new tax measures affect you?

Uganda’s 2025/2026 financial year budget comes with ambitious new tax measures designed to boost domestic revenue, support local production and reduce the country's growing reliance on borrowing.

However, tax policy experts have offered a sobering analysis—praising the strategic intent, but warning that certain tax proposals may backfire if not properly enforced or aligned with ground realities.

In the new financial year, the Government seeks to raise shillings 72.376 trillion, with 33.94 trillion (over $8.8 billion) expected from tax revenue, and another 3.28 trillion (about $851 million) from non-tax sources.

Local government revenue is expected to contribute shillings 328.6 billion (approximately $85.2 million), according to finance minister Matia Kasaija.

While presenting the budget on June 12, 2025, Kasaija said the Government is taking measures to increase domestic revenue, enhance transparency and create a more enabling environment for investment. But how will these measures translate into every day realities?

Insights into key tax changes

Tax policy experts offered expert insights into the likely implications of the budget’s key tax changes.

Sin taxes

One of the most visible tax hikes is on cigarettes, aimed at discouraging smoking and raising revenue. Experts say this tax measure is well-intentioned but also carries a smuggling Risk.

“Cigarettes are harmful to people’s health, and taxing them more helps discourage use,” John Jets Tusabe, director of taxation services at BDO Uganda says.

However, he warned that this tax may have unintended consequences. Since cigarette consumption is price inelastic, meaning that demand doesn’t drop significantly even as prices rise, smugglers may seize the opportunity.

“The policy is sound, but it must be backed by stronger anti-smuggling enforcement,” he cautioned, further noting, “Otherwise, we risk losing revenue to illegal trade.”

The new rates show a sharp increase. Soft cap cigarettes now face an excise duty of shillings 65,000 per 1,000 sticks, up from 55,000, while hinge lid cigarettes attract shillings 90,000, up from 80,000. For imports from outside the East African Community (EAC), the rates are even higher—shillings 150,000 and 200,000, respectively.

Export levies

The Government has also introduced a $10 per metric tonne export levy on maize bran, wheat bran and cotton cake, hoping to retain these raw materials for domestic use in animal feed production.

Regarding this tax measure, the experts posed a question. “Expert levies are intentioned to encourage local value addition, but is it enough?”

“The idea is excellent,” Tusabe said. “We need to ensure our manufacturers have enough raw materials to operate and create jobs.”

However, he warned that the low levy may not be strong enough to deter exports, especially when international prices are attractive.

“If we want real impact, the levy should apply to core raw materials like maize and wheat, not just by-products,” he said, further noting, “Otherwise, the supply problem remains.”

He also emphasized the need to broaden the policy to include oil seeds used in cooking oil production, which are similarly exported, creating scarcity for local manufacturers.

Bujagali tax exemption extension lauded

The income tax exemption for Bujagali Hydropower until 2032 was widely praised by both experts as a power relief measure.

“This exemption keeps power tariffs affordable,” Tusabe explained. Without it, he said, “the government would still be liable to guarantee investors’ returns, and electricity costs would rise.”

According to Tusabe, this move will ease production costs and protect Uganda’s regional competitiveness, particularly for manufacturers heavily dependent on energy.

Three-year tax holiday for small businesses

This year’s tax measures include a boost for startups. A new three-year income tax holiday will benefit Ugandan-owned small businesses started after July 1, 2025, with capital below sh500 million (about $130,000).

“This is a strong incentive for entrepreneurship and local investment,” said Samuel Asiimwe, an independent tax policy consultant. In addition, he said this tax boost “Gives young businesses breathing space to grow.”

However, he warned of potential hurdles. “Government must clarify how ‘capital’ will be verified,” Asiimwe said, further noting “We also need to simplify tax filing procedures to support compliance among small businesses.”

Debt relief for taxpayers: penalties and interest waived

In a bid to support struggling businesses, government is offering a waiver on penalties and interest for taxes owed before June 2024, as long as the principal tax is paid by June 2026.

“This gives businesses a chance to reset,” said Asiimwe. “It’s a practical way to increase compliance and allow URA to clean up old books,” he added.

New digital tax and EFRIS penalties

The new measures also include a 15% tax on digital services provided by foreign companies and stricter penalties under the Electronic Fiscal Receipting and Invoicing System (EFRIS).

Businesses that fail to comply with EFRIS could now be fined double the tax amount due. “That’s fair for minor cases,” Asiimwe noted. “But for large transactions, especially with genuine mistakes, that could be too punitive.”

On the digital services tax, he warned the cost may be passed onto local businesses, increasing the cost of tech tools used in service delivery and innovation.

From TIN to NIN

One of the most transformative changes is the move to replace Tax Identification Numbers (TINs) with National Identification Numbers (NINs) and company registration numbers for tax purposes.

“This will expand the tax base and improve tracking across government systems,” Asiimwe said. But he emphasized the need for strong data protection laws.

He further warned, “URA will be handling sensitive personal and business information. Safeguards are essential.”

Debt picture

As Uganda leans more heavily on domestic revenue, the underlying urgency becomes clearer when viewed against the country’s growing debt.

By June 2025, Uganda’s public debt is projected to hit sh116 trillion (about $31.5 billion). External debt makes up sh56.3 trillion (approximately $15.49 billion), while domestic borrowing stands at sh59.77 trillion (about $16 billion).

That’s 51.26% of GDP—a level that is still deemed sustainable but raises eyebrows in the medium-to-long term.

To manage this, government plans to mobilize more concessional loans from multilateral partners such as the World Bank, IMF, African Development Bank, and BADEA.

However, in a stinging response to the proposed sh72.367 trillion national budget for the Financial Year 2025/26, Shadow Finance Minister Ssemujju Ibrahim Nganda, also the Member of Parliament for Kira Municipality criticized the government's intention to borrow a staggering sh32.075 trillion, which represents 44.3% of the total budget requirement.

This sh32.075 trillion, coupled with sh2.745 trillion in grants (3.7%) and projected tax collections of sh34.051 trillion from URA (47%), leaves the country heavily reliant on external financing according to Ssemujju.

He highlighted a worrying trend, citing the Ministry of Finance's own Medium Term Debt Management Strategy (page 19), which warns of a drastic reduction in concessional lending due to past global recessions.

Furthermore, Ssemujju warned that excessive borrowing from commercial banks is “crowding out the private sector” and pushing interest payments “almost beyond our reach.”

But Tusabe affirmed that “With the new tax measures, government wants to protect local industries, formalize the economy, and generate more revenue without relying on foreign aid.”

However, he stressed that well-intentioned policies require practical adjustments, effective enforcement, and clear communication to achieve the intended economic transformation.

“We just need to close the gaps,” Asiimwe concluded, further affirming, “That way, the country can truly benefit from these promising reforms.”