Uganda is ranked among the most enterprising countries in the world, according to the Global Entrepreneurial Monitor, with 30 percent of its citizens starting businesses annually. From youth selling data bundles in trading centres to a graduate, my own experience brewing juice and making liquid soap in the backyards, with a dream of being their own boss. It is just a reflection of the moderately healthy entrepreneurial ecosystem underscored by the 57 percent current National Entrepreneurship Index. In the face of the high startup rate, the journey is far from smooth, they barely make it to celebrate their first anniversary.
Over the last years government has tried to foster investment and development through various incentives such as income tax exemptions to foreign investors for an investment worth USD 250,000 (Shs930.7 billion) and USD 50,000 (Shs186.15 billion) to local investors for a period of 10 years from the date of commencement. In a progressive move, the government seeks to amend the Income Tax Act, Cap. 338 effective July 2025 to exempt citizen-owned startups from tax for the first three years if and only if the investment does not exceed a threshold of Shs500 million.
This tax token resonates with the government's objective to encourage innovation and growth. And comes in as a catalyst-financial buffer in the early stages of where most firms have no or thin profit margins. This gives them breathing space to reinvest in their operations, expand, and stabilise without the heavy weight of taxes dragging them down. However, this does not do away with the reckoning challenges that continue to batter Micro, Small and Medium Enterprises (MSMES). These include: the ever-present cry for capital, “where is money to start a business?” speaks to limited access to finances, the bureaucratic loop that mar business registration (the delayed processes, complexity and limited awareness, especially for the rural areas) affects formalization of business. This does not exclude even the vital sectors of Uganda’s Economy, like agriculture, having the lowest formalisation. In the same line, the cumbersome post-registration challenges, such as licensing, adhering to quality standards, stifle the growth of these new enterprises.
Additionally, there is also a significant gap in business management. A recent report by the Ministry of Trade, Industry, and Cooperatives on the state of entrepreneurship in Uganda revealed that 61.8 percent don't have or prepare financial budgets, indicating a widespread lack of financial planning and budgeting, record keeping, and adopting formal business processes. Without this foundation, even the best idea gets lost in poor management and bad decisions. Technology? Another hurdle. The low adoption of business technology in running their operations is attributed to the high internet costs in Uganda, which ranks among the most expensive in East Africa, mainly due to the high cost of internet infrastructure. This makes it difficult for businesses to leverage digital platforms to improve efficiency and customer experience. On the international front, global trade policy shifts, down play efforts to tap into the USA market, jabbed with a 10 percent tax levy on all imports from Uganda, in addition to the exclusion from African Growth and Opportunity Act (AGOA), these tariffs not only reduce the already tapped market but also create uncertainty in doing business, as their vulnerability and risks are increased.
I believe that the government must fast-track the formation of a standalone national entrepreneurship policy, leverage and develop capital markets for equity for startups and create more linkages to utilize venture capital. Above all, raising awareness and building capacity on business management skills through mentorship and traineeship programmes. Putting in place the necessary digital infrastructure is a leap for incorporating technology in business operations. To the promising entrepreneurs, compliance and adherence to all policy regulations enacted by the government is vital for reaping you benefits of this incentive. Agility and flexibility to adopt business technologies in day-to-day business operations are key to ensuring efficiency and productivity. In conclusion, Uganda's startup landscape is energetic yet embattled. The proposed tax Amendment Bill 2025 will provide the room for expansion and create stability for startups, but more needs to be done to foster scalability, sustainability, and survival of startups.
Jabez Aterar, economist-graduate trainee at the Civil Society Budget Advocacy Group
