
Apart from digitising the tax system, UTS has also engaged in tax education to enhance compliance. Photo / Michael Kakumirizi
In June 2019, government started implementing the Domestic Resource Mobilisation Strategy, which had been under development for over three years.
Through the strategy, government sought to foster collaboration among key stakeholders - Uganda Revenue Authority (URA), development partners, and civil society - to improve revenue collection, enhance the tax-to-gross domestic product ratio to between 16 and 18 percent by June 2025, broaden the tax base, and close revenue leakages.
While the tax-to-gross domestic product ratio remains below target, it has shown steady progress, increasing by an average of 0.4 percent annually over five years – from under 11 percent in 2019 to 14 percent by June 2024.
The growth has been largely driven by government's digital agenda, which has expanded the tax base by bringing more taxpayers into the fold.
At the centre of this effort is the digital tax stamps, a programme implemented by SICPA Uganda under the aegis of URA and the Ministry of Finance.
In the first half of the 2024/25 financial year, URA indicates that the tax register more than tripled, with taxpayers increasing to 4.88m, of which 232,063 are non-individuals, while 4.64m are individuals.
Of course, there have been several factors but the largest driver, especially among non-individual taxpayers, who make up a large part of the 1,000 taxpayers that contribute 74.5 percent of tax revenue, has been digitising part of the excise duty register through digital tax stamps.
In 2019, government, through the Ministry of Finance and URA introduced digital tax stamps that sought to address critical challenges in tax administration - particularly excise duty on goods such as alcohol, tobacco, and beverages - curb illicit trade, boost revenue collection, enhance transparency, monitor compliance, and protect consumers from counterfeits.
Isaac Arinaitwe, the Ministry of Finance principal economist, says the system was designed to create a culture of compliance because by tracking products from production to sale, government not only closes revenue gaps but boosts tax collection and grows the tax to gross domestic tax ratio.
Over the year, the tax-to-gross domestic product ratio had stagnated to under 11 percent, having regressed from 12 percent in around 2015.
However, the digital agenda has enabled government to access crucial data gaps, enabling accurate analysis of value-added tax and excise duty assessments.
For instance, by the end of the 2023/24 financial year, enhanced digital tax stamps enforcement, according to URA data, had led to a recovery of Shs20.9b through more than 1,000 seizures.
Leveling the playing field in high-risk industries
However, beyond increasing revenues, the stamps have ensured that everyone pays their fair share of taxes.
For years, Uganda’s alcohol and tobacco sectors had been plagued by widespread tax evasion, with non-compliant businesses offering under-the-counter prices, which placed legitimate manufacturers under immense pressure. But the stamps have dismantled this by ensuring that everyone complies with their tax obligations.
Of course, businesses that were not used to being tax-compliant have either scaled back or closed, thereby bringing more taxpayers into the fold and eliminating those that had enjoyed unfair advantages.
By the end of the 2023/24 financial year, more than 1,249 taxpayers, including 920 manufacturers and 329 importers, had registered for digital tax stamps, a significant increase from less than 600 taxpayers on the excise duty register in post-2019.
Thus, this has created a more predictable business environment where tax-compliant businesses thrive, with legitimate manufacturers no longer facing competition from illegal underpricing.
Special field devices are used to verify whether products are stamped and activated, which has seen government report Shs16.17b in revenue from digital stamps assessments and penalties, thereby strengthening the tax base for sustainable development.
Brand and consumer protection
For manufacturers, distributors, and retailers, digital tax stamps offer significant benefits beyond compliance.
The system provides a mechanism to protect brands from counterfeits through secure stamps and tracking features.
Initially, implementation at manufacturers' sites faced challenges such as factory downtime, unstable power, and technical glitches with production components like belt conveyors.
However, downtime has reduced and communication between taxpayers and URA's digital tax stamps team has ensured that technical issues are reported and resolved promptly.
Compliance and business sustainability
Digital tax stamps were introduced in 2019, a few months before Covid-19 struck.
A 2022 Ministry of Finance study noted that government revenues and business sales initially declined following the digital tax stamps implementation.
For instance, tax revenue dropped from Shs692.31b to Shs533.14b in the first year due to implementation delays, but recovered, growing by 29.3 percent to Shs760.99b in the 2020/21 financial year, before growing further.
This growth demonstrated that despite initial challenges, the stamps ultimately improved revenue mobilisation, with the study concluding that the system had proved effective, which was “an indication that digital tax stamps work.”
Of course, there have been concerns about the burden of implementation on the side of manufacturers and importers, however, the Ministry of Finance and URA continue to address this concern with a promise of progressive reductions.
In May last year, URA Commissioner General John Rujoki said the agreement with the digital tax stamps service provider included clauses requiring price reductions when set compliance milestones are achieved, noting that there had been multiple price reductions, with another revision expected to be announced soon.
Arinaitwe emphasizes this, saying: “We have consistently engaged stakeholders and our digital tax stamps service provider to find solutions that do not overly burden manufacturers while still achieving tax compliance,” which highlights the need to balance compliance and business sustainability and by fostering a competitive environment that aligns with national development.
Collaboration
Digital tax stamps are designed for governments that struggle to fight counterfeits, illegal trade, and tax evasion.
In the wake of the increase in counterfeiting attempts, extending to an ever-widening range of targets, brand owners’ demand for protection is growing in virtually all sectors.
To put it in perspective, cigarette and cement manufacturers, have asked URA to tighten enforcement of digital tax stamps due to the continued illegal sale of particularly unstamped cigarettes and related products.
In November last year, a British American Tobacco team led by Chris Achola, the Cluster Head BAT East and Southern Africa, met URA Commissioner General John Rujoki, whom, among others, they asked to find a solution to the trade in illicit cigarettes through enhancing implementation of digital tax stamps.
“In Uganda, we now have 34 percent incidences of illicit trade, which means one out of every three cigarettes smoked in Uganda is not paid or is sold here illegally,” he said, noting that this was alarming and called for URA’s urgent attention.
Thus, the digital tax stamps system from SICPA demonstrates how technology can transform tax administration, and create a transparent and equitable marketplace, and Arinaitwe says, government is “not just addressing tax compliance alone, but is creating a fairer business landscape where legitimate players thrive”.
“Digital tax stamps will continue to evolve as a critical tool in our efforts to enhance transparency, curb illicit trade, and drive Uganda’s economic growth,” he says.
Looking ahead
Digitizing tax will remain a cornerstone of Uganda’s economic strategy, fostering a compliance-driven, predictable, and competitive business environment.
For instance, by curbing revenue leakages, digital tax stamps assessments indicate that new penal tax and penal tax arrears were Shs16.17b during the 2023/24 financial year.
In addition, enforcement operations during the period led to a recovery of Shs20.98b as a consequence of 1,038 seizures, while in December 2024, URA destroyed 36.64 tonnes of illicit cigarettes - valued at $455,000 - in a major crackdown on illicit trade.
The cigarettes, which lacked digital tax stamps and health warnings, were suspected to have been smuggled into the country through the Southern route.
This benefits the private sector by establishing a fairer, more predictable business climate.