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MARK RUHINDI
On June 12th, the Uganda Minister of Finance, Mr. Matia Kasaija (now a darling of the internet) delivered his much anticipated Budget budget for the Financial year 2025/2026, under the theme, ”Full Monetization of the Ugandan Economy through Commercial Agriculture, Industrialization, Expanding and Broadening Services, Digital Transformation and Market Access”
The government aims to collect UGX 37.2 trillion in domestic revenue this fiscal year, up from UGX 31.9 trillion in FY 2024/25. URA alone is expected to raise UGX 33.94 trillion, up from UGX 29.37 trillion last year.
This commentary provides a tax guide through a practitioner’s lens on key tax policy behind these figures as well as budget implications to commerce, emphasizing the following policy propositions in the Minister’s Speech;
- Penalty waivers on interest and tax arrears
- Tax exemptions for Start-Ups,
- Domestic revenue mobilization and
- Tax enforcement implications of the planned revenue mobilization measures.
The guide further filters the speech and highlights key takeaways on what entrepreneurs, and business leaders at the helm of startups, SMEs and large businesses need to know, particularly on Tax waivers, Tax exemptions, planned Reduction in domestic borrowing, Reduction of domestic arrears and Investments in oil and gas and Infrastructure. Read on below;
1. Domestic Borrowing
The Budget confirms a UGX 5.365 trillion reduction in domestic borrowing, from UGX 16.746 trillion in FY 2024/25 to UGX 11.381 trillion in FY 2025/26. This is a strategic move to free up liquidity in the banking system. This should help lower interest rates and ease credit access for private firms, particularly SMEs that have long been crowded out by government borrowing.
However, while credit conditions may improve, taxpayers should brace for a less forgiving tax compliance enforcement environment, since in order to reduce domestic borrowing, the government has turned sharply toward enhancing domestic revenue mobilization, primarily through new tax bills, base-broadening measures, and tighter enforcement by URA.
It follows therefore that while credit conditions might improve, firms should plan for a less forgiving tax environment.
Key Takeaways and Implications for Business;
- New taxes: The External Trade Amendment Act 2025 already passed by Parliament and awaiting the President’s Assent introduces a 1.5% infrastructure levy on non-EAC imports, 1% import declaration fee, and export levies (USD 10/tonne on maize bran, wheat bran, cotton cake).
- Broader tax base: Strategic Sectors are being targeted, i.e Oil and Gas, Tourism, Agro-Industry and ICT. SMEs and informal traders will face increased registration and compliance requirements.
- The Tax Procedure Code Act is being amended to ensure certain transactions such as registration of a stamp duty instrument to transfer property can no longer be undertaken without furnishing the taxpayer’s Business Registration Number or NIN(by the same amendment, these are being substituted for the current TINs).
- Tighter URA oversight: High-turnover companies, exporters, rental income earners, and multinationals should expect more audits, especially in VAT and transfer pricing
2. Tax Arrears Waiver (Valid Until 30 June 2026)
Businesses with outstanding principal tax as of June 2024 will be able to benefit from a full waiver of interest and penalties, provided the principal is cleared by 30th June 2026.
“This window gives SMEs a clean slate and a chance to re-enter the formal economy without punitive backlogs.”
It is advisable to engage URA at the earliest to verify eligibility and get a structured payment plan.
3. Income Tax Holiday for Startups (From 1 July 2025)
Startups owned by Ugandan citizens with capital not exceeding UGX 500 million will qualify for a 3-year income tax holiday.
This is the most direct tax relief ever extended to small Ugandan businesses. Tax registration and timely application for the exemption certificate are critical.
This proposed exemption is by no means a blanket tax exemption. Only those businesses that are able to discharge the compliance burden cast upon them elsewhere in the law will be able to benefit from this exemption, and to receive the Commissioner’s Exemption certificate.
The Tax Procedure Code(Amendment) Bill 2025 seeks to incorporate new provisions in tax procedure that will deny exemption status to taxpayer businesses that fail to discharge this compliance burden.
Implications for Business
Enforcement Will Tighten; Tax losses from SME exemptions and penalty waivers must be compensated and so the URA will be looking to larger taxpayers to fill this gap, focusing on the following areas;
- Increased Transfer pricing scrutiny and audits
- Tighter review of exemptions to ensure the qualifying entities meet all prerequisites before an exemption certificate is granted.
- Rationalization of tax exemptions. A general sunset clause has been introduced through the Tax Procedure Code Amendment Bill already passed by Parliament and awaiting the President’s Assent, which ensures that a taxpayer who ceases to fulfill conditions tied to a tax exemption, loses the exemption.
- Stronger EFRIS and VAT compliance checks
- Risk-based URA audits of large transactions
Taxpayers may need to revisit tax governance controls and seek exemption compliance advisory support even before the bill becomes law.
4. Increased Budget allocation for domestic arrears to Shs 1.4 trillion from Shs 200 billion provided this financial year.
The clearing of arrears is a liquidity lifeline for firms with running contracts with the government.
This allocation provides much-needed cash flow relief to suppliers, contractors, and service providers who have delivered goods or services to government entities but remain unpaid.
Firms with running government contracts will now be in a better position to pay their own suppliers, service debts, and meet payroll.
In effect, this serves as a fiscal stimulus through the private sector, unlocking funds trapped in delayed payments.
5. Infrastructure & Oil & Gas: Risks and Opportunities
Budget priorities include major investments in infrastructure and preparing for commercial oil production. This opens opportunities for local firms to engage in contracts, value-chain services, and provision of materials.
Yet, the budget also introduces complex fiscal structures such as the export levy and rising excise duties as part of domestic revenue measures . These measures could increase compliance burdens and reduce margins, particularly for firms involved whose bulk of transactions are cross-border.
Takeaway: Local businesses should be prepared to engage consultants on sector-specific guidance, seek clarification on new levies, and utilize the 3-year tax holiday for startups entering these sectors.
Strategy is to improve tax efficiency:
- Ensure proper structuring of contracts
- Manage exposure to indirect taxes like VAT
- Optimize tax deductions
- Regularize EFRIS compliance.
- Take advantage of interest and penalty waivers on all principal tax paid before 30th June 2026
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