Tracking domestic tax  growth in last 10 years  

Uganda Revenue Authority has in the last three years intensified tax education to improve revenue collection. Photo / File 

What you need to know:

  • Although tax revenues have been growing in the last 10 years, they remain below target, thus impacting development and budget planning

In the 10 years to June 2024, revenues generated from domestic taxes have been growing at an average of 17 percent annually but remain below target.

In the Background to the 2024/25 Budget, the Ministry of Finance indicates that in absolute terms, domestic revenue has risen from Shs9.4 trillion in the 2014/15 financial year to a projected outturn of Shs27.7 trillion in the 2023/24 financial year. 

However, revenue growth to gross domestic product ratio has remained slower, growing at an average of 0.3 percent from 12.3 percent to 13.6 percent in the period under review. 

Domestic taxes (direct and indirect) contribute the largest share of tax revenues at 58.3 percent, growing from 50.8 percent in the 2014/15 financial. International trade taxes contribute 34.3 percent, dropping from 45.9 percent in the 2014/15 financial year, while non-tax revenue contributions average 5.2 percent. 

However, the growth notwithstanding, the collections have remained below target, impacting government planning and budget performance. 

For instance, while reading the 2024/25 Budget on June 13 in Kololo, Kampala, Finance Minister Matia Kasaija, said the projected domestic revenue outturn for the 2023/24 financial year was Shs27.7 trillion against a target of Shs29.6 trillion. 

This returned a revenue shortfall of more than Shs1.9 trillion.

However, despite the shortfall, government has increased the revenue target for the 2024/25 financial year to Shs31.9 trillion, which is equivalent to 14.2 percent of tax to gross domestic product ratio. 

Government will largely be relying on a single tax head - income tax - that continues to return surpluses. 

During the period, income tax returned a collection outturn of Shs7.4 trillion against a target of Shs7.2 trillion between July 2023 and April 2024, thus registering a surplus of Shs264.1b, and an 18 percent or Shs1.12 trillion growth. 

However, government will be hoping that value-added tax, which registered a shortfall of Shs410.4b between July 2023 and April 2024, realises above the Shs4 trillion target, while collections from excise duty must also improve from Shs1.7 trillion to perform above the Shs2 trillion target for the 2023/24 financial year. 

Additionally, collections from trade taxes, which amounted to Shs7.8 trillion against a target of Shs8.9 trillion, thus a deficit of Shs1.1, must improve. 

Date from the Ministry of Finance indicates that a surplus was only registered under import duty (Shs82.8b), while deficits were spread under value-added tax on imports (Shs690.1b), excise duty (Shs105.2b), temporary road licenses (Shs72.6b) and petroleum duty (Shs108.9b). 

The lower-than-targeted performance of international trade taxes was largely due to a decline in value of vatable imports. 

On the other hand, non-tax revenue collections for the period amounted to Shs1.5 trillion against a target of Shs1.7 trillion, thus returning a shortfall of Shs254.6b. 

During the 2022/23 financial year, government had planned to receive grants worth Shs3 trillion, of which, Shs69.6b was for general budget support, while Shs3 trillion was to support specific projects. 

It was not immediately clear what had been disbursed at the close of the financial year, but projections indicated that project support grant disbursements would be Shs1.5 trillion implying a 50 percent performance, partly due to absorption constraints related to project execution challenges, leading to failure of various projects to meet conditions necessary for further disbursements. 

Government has indicated that during the 2023/24 financial year, it experienced a Shs9 trillion deficit in its operations, which was financed by borrowing from both external and domestic markets.  

The Ministry of Finance says government borrowed a total of Shs7.8 trillion from the domestic markets. 

Government expenditure performance (excluding domestic debt refinancing and appropriation in aid) is projected to close at Shs38.3 trillion against a budget of Shs39.9 trillion, which implies an underperformance of 3.9 percent due to externally financed development expenditure projected to perform at only 41.7 percent, mainly on account of project execution challenges emanating from projects not being fully ready at the time of being included in the budget.