Improving Tax Revenue Performance in Uganda

Abstract

Despite efforts to improve tax revenue performance, tax revenues have not been responsive to overall GDP growth. This has resulted in a tax-to-GDP ratio that has stagnated at about 13% for some time. The stagnant tax effort has constrained government in its quest to expand public expenditure to support improved service delivery. This policy brief, based on a research paper1 that examined the principal determinants of tax revenue performance in Uganda, discusses how Uganda’s tax revenue performance can be improved. Bases on auto regressive distributed lag econometric methods, our analysis shows that dominance of the agricultural and informal sectors pose the largest impediments to tax revenue performance in Uganda. In addition trade openness, industrial sector growth and development expenditures are positively associated with tax revenue performance. We propose policies to support the development of value added linkages between agricultural and industrial sectors while emphasizing the need to unlock the potentially large contributions of the informal sector with a view of widening the tax base.