World Bank urges Uganda to raise income taxes, end exemptions for elites

The World Bank has called on Uganda to raise income taxes and scrap preferential treatment for politicians and military officers in order to boost the country’s low revenue collection.

In a report released on September 30, the lender noted that Uganda’s tax revenue stands at 13.9% of gross domestic product, below the 15% threshold seen as critical to driving economic growth and development, Bloomberg writes. 

The Bank proposed raising personal income tax for higher earners by five percentage points to 35%, while also eliminating exemptions for members of parliament, the judiciary and military personnel. It said doing so would have added 556 billion shillings, about 0.3% of GDP, to government revenue in the 2024 financial year.

The report urged policymakers to target the country’s wealthiest citizens, pointing out that the richest 20% control nearly half of Uganda’s wealth.

“The tax burden falls heaviest on lower-income groups through VAT and fees, while the wealthy often exploit loopholes and exemptions to pay relatively little,” it said, referring to value added tax.

It also warned that the widespread practice of granting tax exemptions to large firms and small businesses “poses a significant threat to Uganda’s tax revenues and creates an inequitable tax system.”

The World Bank frequently advises countries to broaden their tax base and strengthen enforcement in order to mobilise domestic resources for investment and essential services. But such reforms can come with steep political costs.

In neighbouring Kenya, President William Ruto was forced to retreat last year from plans to impose new taxes on goods such as bread and diapers, after the proposals triggered nationwide protests that left at least 60 people dead.

By Sabina Mammadli