Tax push sparks concern over pressure on businesses

Business leaders say the tax burden is becoming increasingly difficult for businesses to manage

Kampala, Uganda | JULIUS BUSINGE | Uganda’s drive to raise more money through domestic taxes is drawing growing concern from economists and business leaders, who warn that the country risks placing too much pressure on companies and workers at a time when businesses are already struggling with rising costs.

The concerns emerged during a tax breakfast meeting organised by BDO Uganda at the Sheraton Kampala Hotel on May 19, where tax experts, economists and private sector leaders discussed Uganda’s changing tax environment ahead of the 2026/27 national budget.

Held under the theme “Shifting Ground: How Tax Rules are Being Re-written,” the meeting focused on how Uganda plans to finance its expanding budget amid growing debt obligations and pressure on public finances.

This comes at a time when the government has increasingly shifted its attention toward domestic revenue collection as it seeks to reduce reliance on external borrowing while funding infrastructure projects, public services, and investments linked to the country’s oil sector.

Unbearable tax burden

But business leaders say the tax burden is becoming increasingly difficult to manage. John Jet Tusabe, director of tax and regulatory services at BDO Uganda, said Uganda’s tax administration environment is becoming tougher for both employers and workers.

“Workers are already overtaxed,” Tusabe said, arguing that Uganda’s Pay As You Earn tax structure was discouraging formal employment and making it difficult for companies to retain skilled workers.

He also criticised provisions that require taxpayers to pay part of disputed taxes before appeals are fully heard. According to participants at the meeting, many businesses feel tax enforcement is becoming increasingly aggressive as government pushes for stronger collections.

The discussions come as Uganda’s public debt continues to rise. Figures presented during the meeting showed the country’s debt has now exceeded 52 percent of Gross Domestic Product, while interest payments are consuming a growing share of government revenues.

Economist Fred Muhumuza warned that Uganda’s fiscal strategy risks weakening private sector activity if higher taxation and increased borrowing continue at the same time.

Presenting a paper titled “Need to Re-write the Rules,” Muhumuza said Uganda’s economic indicators appeared stable on the surface, with projected growth above six percent and inflation remaining relatively low.

However, he argued that deeper structural weaknesses remain within the economy.

Drawing from assessments by the International Monetary Fund and data from the Bank of Uganda, Muhumuza said government borrowing was crowding out private sector credit and reducing investment in productive sectors.

He also noted that domestic arrears owed by government to suppliers and businesses had accumulated to nearly Shs8.4 trillion.

“This massive outstanding debt owed to local businesses and suppliers is a major strain on the economy,” Muhumuza said.

He questioned whether Uganda’s tax policies were doing enough to support industrialisation, investment and long-term economic growth.

“Tax policy is a powerful economic tool to stimulate growth, redistribute wealth for social equity, control inflation, and influence public behaviour,” he said.

Muhumuza also warned that excessive taxation could slow economic expansion, citing research showing that increases in tax revenue collection can sometimes reduce GDP growth if businesses face rising costs without corresponding improvements in productivity.

Some private sector leaders have also raised concerns about specific tax proposals expected to feature in the upcoming budget cycle.

The Private Sector Foundation Uganda has criticised the Alternative Minimum Tax, saying it disproportionately affects businesses operating on low profit margins or temporary losses.

Isa Sekito from the business lobby group warned that additional fuel taxes and higher import charges could worsen operating conditions across the economy.

On import taxation, Sekito criticised proposed increases in surcharges on used clothing imports.

“This represents a 100 percent increase in surcharge burden,” he said.

Increased cost of doing business

Business leaders at the meeting argued that rising taxes, fuel costs and import charges would likely increase the cost of doing business and reduce affordability for consumers.

Uganda is currently preparing for another expansive national budget as government seeks to finance infrastructure development, energy investments and preparations for expected first oil production.

Officials have repeatedly defended stronger domestic revenue mobilisation as necessary for reducing dependence on external financing and improving fiscal sustainability.

Economists and business leaders, however, say balancing revenue collection with private sector growth will remain one of Uganda’s biggest economic challenges in the coming years.