Uganda’s 2025/26 national budget, unveiled by Finance Minister Matia Kasaija on 12 June 2025 signals a robust push toward economic transformation, with a resource envelope of UGX 72.4 trillion.
The budget’s theme, “Full Monetization of the Ugandan Economy through Commercial Agriculture, Industrialization, Expanding and Broadening Services, Digital Transformation and Market Access” reflects a clear focus on accelerating economic growth, diversifying exports, and fostering private sector development. As Uganda targets middle-income status by 2040, the 2025/26 budget lays out a roadmap of economic priorities, fiscal trade-offs and new opportunities for businesses and investors.
This budget is being implemented at a time when, despite positive macroeconomic indicators and reported economic growth, many ordinary citizens have yet to experience tangible improvements in their daily lives. Persistent challenges such as underdeveloped road network, limited access to quality healthcare, high unemployment rates and significant income inequality continue to affect ordinary Ugandans. These are critical areas that the government needs to address to ensure that economic progress translates into real benefits for all Ugandans.
The budget therefore presents strategic opportunities aimed at accelerating socio-economic transformation through targeted investments in key sectors. The largest allocation, which amounts to 26.1% of the budget, is dedicated to Human Capital Development that encompasses health, education, social protection, and water and sanitation; this reflects a strong focus on improving the quality of life and productivity of Ugandans. Integrated Transport Infrastructure and Services are allocated 14.6%, supporting connectivity and trade facilitation. Other significant allocations include Private Sector Development (6.2%), Agro-Industrialisation (4.2%), and Regional Development (3.7%), all designed to drive wealth creation, value addition, and inclusive economic participation.
These priorities, underpinned by investments in innovation, digital transformation, and energy, position Uganda to harness its demographic dividend, expand its export base, and achieve sustained high growth towards its Vision 2040 goals. However, the above ambitious spending plan comes with notable trade-offs. The budget deficit is projected at 7.6% of GDP. This deficit will be financed through both domestic and external borrowing, as part of the government's broader strategy to support economic growth.
Consequently, public debt is expected to reach USD 31.5 billion (51.26% of GDP) , up from USD 26 billion as at the end of June 2024. Based on this debt to GDP ratio, the International Monetary Fund (IMF) has classified Uganda as experiencing a moderate risk of debt distress . This indicates that although the nation's debt might be considered manageable, there is little capacity to withstand shocks like economic recessions or declines in revenue.
In order to address this risk, the Government has committed to intensify efforts to mobilize domestic revenue of UGX 37.2 trillion, out of which UGX 34 trillion relates to tax revenue and UGX 3.2 trillion to non-tax revenue. Domestic revenue will make up 60% of the budget.
New tax measures have been proposed by Government in the aim to raise UGX 538.6 billion. These include waiver of interest, where taxpayers settle principal tax that was outstanding as at 30 June 2024, as well as increments in rates for customs and excise duties on particular products.
However, the tax base remains narrow. As at 31 May 2025, URA projected that it would collect tax revenue of UGX 27.36 trillion, falling short of its UGX 29 trillion tax revenue collection target by nearly UGX 1.7 trillion by 30 June 2025. This shortfall is mainly attributable to certain sectors such as trade, manufacturing and services that did not perform as robustly as anticipated despite the reported growth of the economy. Specifically, there was less economic activity than had been expected in these sectors that have historically been significant contributors to tax revenue.
Based on the above, the Government’s commitment to increase investment in wealth creation programmes, support SMEs through capitalisation in Uganda Development Bank, promote digital transformation, and diversify exports is therefore a step in the right direction to boost productivity, competitiveness and job creation in these sectors as part of the domestic revenue mobilisation strategy.
Nevertheless, the Government must remain vigilant to other aspects that are responsible for low tax revenue collection by tackling persistent issues of tax evasion and non-compliance resulting from taxpayers that continue to under-declare income and engage in smuggling.
In addition, the taxman should ensure that digital platforms like the Electronic Fiscal Reporting and Invoicing System (“EFRIS”) and Digital Tax Stamps are deployed in a manner that encourages compliance for example through the Government meeting costs that businesses currently have to incur in implementation of these systems. In addition, a clear accountability framework for the collected funds by Government and a more inclusive stakeholder engagement will go a long way in building public trust as a way of encouraging sustainable revenue growth without stifling economic activity or exacerbating inequality.
Conclusion
In comparison to previous years, Uganda’s 2025/26 revenue mobilisation strategy reflects a more diversified approach aimed at reducing reliance on external financing. This marks a shift towards a more self-reliant and resilient fiscal framework compared to earlier years. However, there remains a key role for Government to play in closing the loopholes in order to achieve the anticipated revenue target.
By Juliet Najjinda Mutabaazi - Senior Manager, Tax Services, PwC Uganda
