Sh72.36tn Budget hailed for powering grassroots growth, financial inclusion

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A cross-section of stakeholders has hailed the sh72.36 trillion National Budget for the 2025/26 Financial Year (FY) as “pro-poor,” citing increased funding for the Parish Development Model (PDM) and other community-based revolving funds.

PDM is a revolving fund aimed at transitioning thirty-nine percent of citizens still trapped in the subsistence economy into the money economy.

In the new financial year, set to be launched later today at Kololo Independence Grounds, the government plans to allocate sh1.075 trillion to Parish Development Model (PDM) Savings and Credit Cooperatives (SACCOs).

In comparison, during the 2023/24 and 2024/25 financial years, Parliament appropriated Sh1.097 trillion for the PDM. Of this, Sh1.059 trillion was earmarked to finance 10,594 PDM SACCOs across 176 local governments and the Kampala Capital City Authority (KCCA).

Speaking on a weekly television talk show on June 11, 2025, Sheema Municipality MP Dicksons Kateshumbwa (NRM) said the move would significantly enhance financial inclusion and boost household incomes.

“The problem is you people in Kampala, you don’t know what is taking place on the ground. When you talk of economic growth what you look at as sh1m as pocket change on a Friday night in Kampala means a lot to the wananchi (citizens). There are people who have never touched a million. If he is able to get a million, buy a day-old chick, feed them, and sells them at six weeks sh18,000 a bird, he will make a profit of not less than sh4,000. That is the Gross Domestic Product (GDP) you are talking about,” Kateshumbwa remarked.

He added that President Yoweri Museveni’s recent countrywide tours to assess performance should not be dismissed, as they reflect a genuine effort to awaken an otherwise unproductive population. He further explained that once these communities begin to generate income, the impact on the economy will be substantial.

“You can only grow the revenues in this country now if you are targeting indirect taxes and those are the outcomes of consumption. You cannot consume without disposable income,” Kateshumbwa further explained.

CSBAG executive director Julius Mukunda argued that although similar programmes in the past have failed to deliver the desired impact, the country cannot afford to write off the PDM. Going forward, he emphasised the need for the government to systematically document best practices.

Other revolving funds

In the 2025/26 financial year, Sh100 billion has been allocated to Emyooga SACCOs, with sh20 billion specifically earmarked for teachers’ SACCOs. Additionally, the government has allocated sh76.67 billion to support the Microfinance Support Centre, of which Sh50 billion is for onward lending and sh10 billion for special interest groups.

To enhance the participation of youth and women in development, sh23.66 billion has been allocated to the Uganda Women Entrepreneurship Programme (UWEP) and the Youth Livelihood Programme. Furthermore, sh3 billion has been set aside to help Jua-Kali enterprises transition into the formal economy, while Sh5 billion has been allocated as an enterprise fund for older persons.

Tax break for Ugandan start-ups

Another striking feature of this year’s budget is the extension of the tax exemption period for new businesses owned by Ugandan citizens with capital not exceeding sh500 million, from the current three years to a range of five to ten years.

This proposal was mooted in the Income Tax (Amendment) (No.2) Bill, 2025 and subsequently passed by the House. It applies to start-ups established on or after July 1 this year.

To qualify, businesses must be duly registered, and the owners or their associates must not have previously benefited from a similar exemption. In addition, eligible businesses must submit tax returns that include a business information return, as specified under Section 147 of the Act, in the format prescribed by the Commissioner General.

This move, economists have stated, is expected to stimulate entrepreneurship and encourage the formalisation of businesses across the country.

While the move is commendable, economist Dr Fred Muhumuza expressed concern that the aforementioned businesses remain subject to other crippling taxes like Value Added Tax (VAT), something that could undermine the intended benefits of the exemption.

“The tax you are exempting them is the profit tax. But will they even get there?” Muhumuza posed.

Another concern surrounding the proposed tax break is its limited timeframe. Appearing before the Finance Committee on April 24, Muhammad Ssempijja, a tax partner at Ernst & Young (E&Y), recommended that the exemption be extended to at least ten years to give businesses sufficient time to stabilise.

“For any business to start, not even making profits. To break even is five years plus, so at three years, it’s a good initiative, but I am still in a loss position on average. Two, the rest of the exemptions on industrial parks, free zones are ten years. We are saying align it. That’s why we are proposing something like ten years to align it with the rest of the exemptions,” Ssempijja argued.

“If a person goes and borrows sh100m from a bank and has sh50m to start a business. Usually, you will find the bank period is about three years. In the first three years, he is struggling with loan repayments. I think there was a study sometime back where it was established that most of the businesses don’t live up to their fifth birthday. I think you are aware of that study. Ideally, we are looking at something like five years, ten years is a little bit too much,” Kateshumbwa stated at the time.

However, committee chairperson Amos Kankunda (Rwampara County, NRM) opined that the government may have opted for a shorter window after observing that extended tax exemptions have not always delivered the desired outcomes.

Domestic revenue

In the 2025/26 financial year, the government is targeting the collection of sh37 trillion from domestic taxes. This would be an increase from the sh31.4 trillion raised last year. However, scepticism remains over whether the Uganda Revenue Authority (URA) can meet this ambitious target.

Appearing on the same talk show, Sirajje Kanyesigye Baguma, a Chartered Public Accountant (CPA), pointed out that many of the country’s tax laws are largely borrowed from credit-based economies, with minimal customisation to suit the local context, which is why they often backfire.

For instance, Baguma noted that although business is thriving in Kikuubo, the majority of business owners there are illiterate and may not know how to file VAT returns.

During his time at URA, he said that they had proposed the introduction of a presumptive VAT system, which in their view was simple enough for such traders to comply with.

“When we want to think that everyone must file a return in the same way MTN does who is able to employ a very well-paid accountant, many times we miss out on that. And many times, because people are unable to compile most of those complex tax policies and structures, what happens is that they shy away and go into the informal sector,” Baguma contended.

“The tax policies we make are legalistic in nature. Between me and you, if you went to a Member of Parliament (MP) and said; explain this tax policy to me. They may need to first go back and do more research. Then you expect to find a man in Kikuubo to get that law, interpret it and apply it. Good practice says that when you pass a law you bring out what they call explanatory notes,” he added.

Public debt

Another unsettling aspect of the budget is the growing public debt, which, according to Ibrahim Ssemujju Nganda’s alternative budget statement delivered today, now stands at sh106 trillion.

The Kira Municipality MP further notes that to manage this massive burden, the government has allocated sh27.3 trillion (38% of the total budget) for debt servicing under Vote 130.

Ironically, while this substantial sum is earmarked for repaying existing debt, he says the same government is simultaneously planning to borrow Sh32 trillion to fund other budget priorities.

“China has become the biggest beneficiary of our debt servicing. This financial year as at December 2024, we had paid China $178.744 million (sh679,228,279,200). Of this 679 billion, sh212,214,952,000 is interest, and sh13.2 billion is commission and other fees. Currently, Uganda owes China sh9.2 trillion. Only the World Bank with sh18.3 trillion has lent Uganda more. Chinese loans are very expensive,” Semujju stated in a statement released on June 12, 2025.