Stakeholders seek 10-year tax break for Ugandan startups

KAMPALA - Private sector players have urged the Government to extend the proposed tax exemption for new businesses owned by Ugandan citizens with capital not exceeding sh500 million from three years to between five and ten.

The move is contained in the Income Tax (Amendment) (No.2) Bill, 2025 applies to start-ups established after July 1, 2025.

This is on condition that the aforementioned businesses are registered and that the citizens or associates behind them have not previously benefited from a similar exemption, and submission of tax return that includes a business information return as specified under Section 147 of this Act, in the format prescribed by the Commissioner General.

Appearing before the Finance Committee on Thursday, April 24, 2025, Muhammad Ssempijja, a tax partner at Ernst & Young (E&Y), noted that while the move is long overdue, the three-year timeframe remains insufficient.

“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, and 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.

Weighing in, Committee Chairperson Kankunda contended that the Government may have settled on the three-year exemption after recognizing that longer tax holidays have not yielded the desired impact. This narrative was backed by Sheema Municipality MP Dicksons Kateshumbwa, who also called for linear alignment of other taxes.
 
“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,” said Kateshumbwa.  

“As we look at Sh500m, don’t you think we need to match that proposal with a review of the VAT threshold upwards, from a technical angle? Even Pay as you earn (PAYE) because you have a lot of people and they are in the register where their net VAT is negative,” he added.

Pakwach Woman MP Jane Avur Pacuto (NRM), slightly disagreed saying that previous studies which portrayed Uganda’s business environment as ‘complicated’ were done before the internet became a popular item in the internet and much has changed since.

“There is a lot of e-commerce, people don’t have to travel from Arua to Kampala or even fly to Dubai or China as often as they had to be,” Pacuto pointed out.

“Five years would now suffice for now, since technology has really eased doing business. I am arguing that we can push it from three to five since these laws are amended almost yearly when we see that it is not working. Perhaps after two or three years, it can still be studied,” she added.