Govt proposes three-year tax exemption for startups
A URA official reviews some paperwork from a taxpayer. The URA has showcased EFRIS benefits such as fast-tracked tax refund claims, and prefilled tax returns which minimise costs of preparing tax returns. PHOTO/FILE
What you need to know:
- As the startup ecosystem in Uganda continues to grow and evolve, the government’s decision to exempt startups from income tax for three years is expected to play a crucial role in driving economic growth and development.
Government has proposed to exempt startups from income tax for three years from the date of commencement under the Income Tax (Amendment) Bill, 2025.
In a March 25 Bills Supplement under the title: Income Tax (Amendment) (No 2), 2025, Finance Minister Matia Kasaija noted that: “The objective of the Bill is to amend the Income Tax Act, Cap 338 to provide for the exemption of startup businesses established by a citizen for a period of three years from tax.”
The decision, if approved, will relieve startups of a tax burden that has been eating up business capital for onward investment.
Mr David Sempala, the chief executive officer of Highway Media, a public and corporate communication company, described the move as the “best ever”, noting that “anyone who has ever started a business knows how hard the first three years can be”.
The exemption is expected to benefit startups in various sectors, including technology, agriculture, and manufacturing. Startups will be able to retain some earnings for onward investment.
Mr Gideon Nkurumungi, the ICT Association of Uganda chief executive officer, said beyond looking at income tax, government should look at subsiding or exempting tools and equipment that startups use.
“While exempting startups from income tax may seem like a great incentive, it doesn't address the hefty taxes imposed on the essential tools they need to operate, such as laptops, servers, and routers,” he said, adding that “A holistic approach is necessary to support the startup ecosystem. This includes reducing taxes on digital devices and services, improving access to affordable internet, and stimulating investments in digital infrastructure.”
Uganda’s startup ecosystem continues to attract investment due to high unemployment among the youth, many of whom have taken on entrepreneurship as an alternative to improve their livelihoods.
Data from AfriCo, a business intelligence platform that provides information on African private and public companies, indicates that Uganda enjoys a geographic advantage for startups while its neighbours, including Rwanda and Tanzania continue to thrive in terms of attracting venture capitalists.
Uganda ranks 89th out of 202 countries based on the strength of its startup ecosystem, with Kampala, Mbarara, Jinja and Gulu being the most prominent cities for startups.
The country has also been recognised on different levels as the most entrepreneurial country in the world by the Global Entrepreneurship Monitor. This, has been partially attributed to the fact that the country has the world’s second youngest population, with 78 percent of the population below 35 years old.
Uganda has created a $57m (Shs210b) ecosystem value over the last two and a half years, with Fintech being one of the fastest-growing sectors for startups.
Other proposed exemptions
Bujagali Hydropower
Government’s decision is part of a broader package of tax exemptions and amendments that seek to support economic growth. The Income Tax (Amendment) Bill, 2025, also proposes tax exemptions for Bujagali Hydropower Project until June 30, 2032, in addition to exemptions on textile inputs from value added tax, as well as solar lanterns, bio-mas pellets, and aircraft supply.
These exemptions seek to promote environmental sustainability, reduce reliance on traditional biomass fuels, and support domestic manufacturing.
The repeal of the VAT exemption on billets is intended to boost local production, reduce reliance on imports, and advance Uganda’s industrialisation agenda, said Finance State Minister Henry Musasizi.
The proposed amendments also introduce the anti-fragmentation rule, aimed at combating tax evasion by preventing importers from intentionally splitting consignments to remain below the VAT registration threshold.
As the startup ecosystem in Uganda continues to grow and evolve, the government’s decision to exempt startups from income tax for three years is expected to play a crucial role in driving economic growth and development.
