A truck loaded with matooke proceeds to the market in Kampala. Some analysts say nearly 70 percent of farmers involved in the agricultural sector are growing food for consumption, meaning it is not ready for taxation yet. PHOTO/MICHAEL KAKUMIRIZI
The agricultural sector which contributes nearly 25 percent to the country's Gross Domestic Product (GDP) should be gradually brought into the tax net through a phased approach. However, proposals to tax this sector often spark controversy.
The Agriculture sector still avoids taxation not because it is beyond the taxman's binoculars, but because it is “the elephant in the room”.
In the course of this special project, dm Money established that anything concerning taxing the sector contributing less than 1 percent to revenue, according to Uganda Revenue Authority (URA), is deemed controversial or dangerous topic by those in positions of authority and power.
A sector contributing nearly 25 percent to the country's Gross Domestic Product (GDP) should be gradually brought into the tax bracket through a phased approach.
But whenever this suggestion comes up, it is deemed “controversial” although everyone within the policy making hierarchy, particularly the economic managers at the Finance ministry, acknowledge the need to “slowly” tax the sector. But they avoid discussing it in depth, as it challenges those in power.
Previous failed attempts to introduce some taxation explains why policymakers at various ministries and planning agencies no longer feel comfortable making a case for taxing agriculture.
Attempts to reintroduce Withholding Tax (WHT) at a rate of 0.5 percent on agricultural supplies of more than Shs10 million failed flat in the recent tax proposals. The reason here might be that this is an election year. So, just like the fuel tax is being withdrawn, there is fear that attempts on taxing agriculture might be misunderstood, resulting into a backlash that could manifest in voting patterns.
But what was the reason nearly seven years ago?
In July 2018, a 1 percent WHT on agricultural supplies was introduced, but by July 2019, it was repealed, exempting agricultural supplies under Section 136(5) (c) of the Income Tax Act.
Consequences
The introduction of this tax did not only have significant economic implications but also played into the hands of naysayers.
A few large companies were designated WHT agents, which led many farmers to sell their produce to non-designated buyers to avoid the tax deduction. This distorted market competition resulting into business losses for the designated WHT agents.
Additionally, since WHT agents were not required to collect the Tax Identification Numbers (TINs) of suppliers, the Uganda Revenue Authority (URA) faced difficulties in identifying agricultural suppliers, including potential High Net Worth individuals (HNWIs) within the sector.
This lack of traceability not only hindered efforts to broaden the tax base but also allowed some wealthier individuals to evade their tax obligations, thereby weakening domestic revenue mobilisation and perpetuating informality within the agricultural sector, one of Uganda's largest economic drivers.
Ways around it
But not all is lost. Mr Aloysious Kittengo, a tax analyst and tax justice advocate representing the Tax Justice Alliance Uganda (TJAU), believes there is a way to fix this problem.
“There are four broad strategies that Uganda, and the URA in particular, could pursue to increase compliance among high-income earners in the agriculture sector. One way is to reinstate WHT on agricultural supplies. Secondly, upgrade the withholding tax system. Thirdly, expanding registration of large agricultural suppliers, and fourthly, increasing enforcement efforts on non-compliant large taxpayers in the sector.”
However, given the past performance of the WHT on the agricultural sector, analysis by TJAU on the tax measures and proposals for the next financial year should be the reintroduction of the WHT tax regime, describing it as the “most viable option.”
For instance, in the financial year 2018/2019, when the tax was in force at a rate of 1 percent, a total of Shs36 billion was collected against an estimate of Shs15 billion. TJAU analysis estimates that at a rate of 0.5 percent, which the government has since refused to consider, at least Shs25 billion could have been collected in the first year.
One by one make a bundle
In an interview with Ms Jane Seruwagi Nalunga, an expert on trade, tax and investment as well as agriculture sector analyst, unlike other sectors of the economy, agriculture has not matched the hype even when its performance, estimated to have expanded at 5.1 percent in the previous financial year compared to 4.5 percent registered in Financial Year before - 2022/23.
She said: “It doesn’t make sense taxing people with one or two cows or people producing just enough for consumption. This is not what we are calling for. Why aren't people who are earning Shs200 million from livestock or commercial farming contributing to the national kitty in the form of taxation?
According to the URA performance report for 2023/24, the agricultural sector contributed 24.7 to Uganda’s GDP but less than 1 percent to revenue, describing it in a tweet ahead of a related discussion with stakeholders as the elephant in the room!
Sector contribution
Despite having the largest contribution to GDP, contributing the most goods and services in the economy, the agriculture sector fares poorly when it comes to sector contribution to revenue. For example, according to the URA performance report for 2023/24, manufacturing contributed 15 percent to GDP and nearly 23 percent to revenue.
Farmers dehusk rice in Butaleja district. According to the URA performance report for 2023/24, the agricultural sector contributed 24.7 to Uganda’s GDP but less than 1 percent to revenue. PHOTO/MICHAEL KAKUMIRIZI
Wholesale and retail contributed 9.5 to GDP and 30 percent to revenue. Financial and Insurance activities generate 2.8 percent to GDP and nearly 12 percent to revenue. ICT chipped in with 1.8 percent to GDP and nearly 11 percent contribution to revenue. And then real estate chips in with another 6 percent to GDP while contributing 2.6 percent to revenue. Finally, construction's contribution to GDP stands at 5.2 percent and to revenue at 2.7 percent.
No way!
The government continues to refuse the idea of taxing the sector. In a sideline interview at the trade sector review conference, 2025 in Kampala, the Minister of Trade, Industry and Cooperative, Mr Francis Mwebesa when asked about having agriculture sector contribute to revenue, he said: “What commodities are you going to tax exactly?” he questioned, adding, “If you want to kill agriculture then tax it. Leave agriculture alone!”
However, the Deputy Secretary to the Treasury, Mr Patrick Ocailap in an interview recently said processed or added value agricultural products should suffice for “small” taxation. He said this is already happening in manufacturing where such products are registered for Value Added Tax (VAT).
The Economic Policy Research Centre (EPRC) research fellow, Dr Brian Serunjogi, is of the view that the problem is bigger than meets the eye.
“Attempts to tax the agriculture sector have always been fought. Yet it makes sense to bring the sector into a taxable bracket because there are people making money from the sector. Each head of cattle can go for up to Shs3 million and somebody who has used a road to transport that livestock or crop pays nothing in taxes,” he observed.
For Mr Richard Obedi, an agriculture sector analyst, the state at which the sector is currently with nearly 70 percent still involved in growing food for consumption, is not ready for taxation just yet. The same view is shared by Mr Godfrey Mwanje, a coffee and banana farmer in Masaka.
However, the only difference between the two and the likes of Minister of Trade, industry and Cooperatives, Mr Mwebesa and the Minister of State for General Duties at Ministry of Finance, Mr Henry Ariganyira Musasizi, is that discussion around bringing the sector into taxable income should start in earnest.
For the government, particularly the Cabinet, the issue of taxing agriculture is a controversial one and, therefore, better left in hibernation. This state of affairs suits those in power as it excludes most of them from the taxman's binoculars.
Political interest
Others like Mr Henry Bazira Mugisha, a maize and poultry farmer, argue that with agriculture contributing 85 percent of export earnings and almost 75 percent of national employment—including employing most of the country’s poor—taxing the sector is necessary for domestic revenue mobilisation in the wake of dwindling donor funding.
This, however, he said should be done sensibly because “I don’t expect the government to over milk the cow that supports the economy yet is badly fed.” For Mr Bazira, a professional farmer, the whole issue around reluctance to have the agriculture sector contribute meaningfully to tax revenue is rooted in the selfish political interest of the sector players, a key segment of which are politicians or people with political connections and power.
Researcher Serunjugi, analyst Kitengo, and the executive director of Civil Society Budget Advocacy Group (CSBAG) Mr Julius Mukunda, all concur that political interest and interference remain the biggest stumbling block to transforming the sector into a meaningful contributor to revenue.
“I agree that formalisation of the sector is an issue. But I also see lorries of cattle and trucks full of crops heading to market every day and cashing in on profit without paying any taxes!
A man receives cows at the city abattoir. “Attempts to tax the agriculture sector have always been fought. PHOTO/MICHAEL KAKUMIRIZI
“This is because most politicians and people in places of authority are also in farming businesses or own ranches. Therefore it is safer to give a blind eye to concerns relating to taxing the sector because if you do so, you would be inconveniencing many of them,” said Mr Mukunda.
Going forward, Mr Mukunda suggests that the starting point for catching those who make taxable money from the sector could be at the market level for crops and abattoir for livestock. Then, enforcing traceability, which is the ability to follow a food product or ingredient through all stages of production, processing, and distribution, could help fast-track the sector into a taxable bracket.
This will require deepening the uptake of digitisation in the sector. But the biggest necessity is for the political class to liberalise the comfort beyond self. Then collectively realise that contributing to the tax kitty is for the benefit of all of Ugandans and not just some of us.
