Finance Minister Matia Kasaija unveiled Uganda’s 2025/26 national budget on June 12, 2025, signaling a robust push toward economic transformation with a resource envelope of Shs72.4 trillion.
The budget’s theme, “Full Monetisation of the Ugandan Economy through Commercial Agriculture, Industrialisation, Expanding and Broadening Services, Digital Transformation and Market Access,” clearly focuses 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 an underdeveloped road network, limited access to quality healthcare, high unemployment rates, and significant income inequality still 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 opportunities aimed at accelerating socio-economic transformation through targeted investments in key sectors. The largest allocation, which amounts to 26.1 percent 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 percent, supporting connectivity and trade facilitation. Other significant allocations include Private Sector Development (6.2 percent), Agro-Industrialisation (4.2 percent), and Regional Development (3.7 percent), 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 percent of Gross Domestic Product (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 $31.5 billion (51.26 percent of GDP), up from $26 billion at the end of June 2024. Based on this debt-to-GDP ratio, the International Monetary Fund (IMF) classifies Uganda as being at 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.
To address this risk, the government has committed to intensifying efforts to mobilise domestic revenue of Shs37.2 trillion, out of which Shs34 trillion relates to tax revenue and Shs3.2 trillion to non-tax revenue. Domestic revenue will make up 60 percent of the budget.
New tax measures have been proposed by the Government to raise Shs538.6 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 of 31 May 2025, Uganda Revenue Authority (URA) projected that it would collect tax revenue of Shs27.36 trillion, falling short of its Shs29 trillion tax revenue collection target by nearly Shs1.7 trillion by June 30, 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 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 who 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, the Government must close the loopholes to achieve the anticipated revenue target.
Juliet Najjinda Mutabaazi is a senior manager tax services at PwC.
