By Morrison Rwakakamba*
As Uganda prepares to read its national budget for the financial year 2026/27 on Thursday 11, June 2026, the chosen theme — Full Monetization of Uganda’s Economy through Commercial Agriculture, Industrialization, Expanding and Broadening Services, Digital Transformation and Market Access — sets an ambitious agenda for transforming subsistence activities into market-oriented wealth creation activities. This aligns closely with President Yoweri Museveni’s long-standing principle that national budgeting must prioritize private sector facilitation, value addition, infrastructure development, and household income enhancement to drive socio-economic transformation.
Over the years, President Museveni has consistently argued that prudent macroeconomic policies, peace, and targeted investments in commercial agriculture, manufacturing, and services create wealth by expanding the money economy. This is evidenced by gross domestic product growth from around 3.9 billion United States dollars in 1986 to approximately 69 billion United States dollars today, with initiatives like the Parish Development Model lifting many households into monetized activities.
This foregoing vision resonates with deep economic principles. Adam Smith, in The Wealth of Nations, championed the invisible hand of markets and warned that taxation must follow four canons: equity proportional to ability to pay, certainty of obligations, convenience for taxpayers, and economy with minimal excess burden beyond revenue raised. Smith argued that taxes distorting production, capital accumulation, or incentives for labor and enterprise hinder the division of labor and wealth creation, ultimately shrinking the tax base. John Maynard Keynes complemented this by emphasizing aggregate demand and fiscal policy in managing economic cycles.
In periods of cost-push pressures, such as global fuel volatility from Middle East conflicts, Keynes advocated avoiding measures that suppress consumption, investment, and economic multipliers, instead favoring tools that crowd in private activity. Recent 2025 Nobel laureates Joel Mokyr, Philippe Aghion and Peter Howitt deepen this understanding through innovation-driven growth and creative destruction. Their work shows how institutions fostering knowledge diffusion, firm entry, competition, and technological progress generate sustained endogenous growth, provided policies lower barriers rather than impose high costs on productive inputs or digital tools.
Uganda’s economy demonstrates resilience, with gross domestic product growth around 6 percent in recent years and projections of 6 to 7.6 percent, supported by agriculture, manufacturing, construction, and upcoming oil production. Nominal gross domestic product approaches 65 to 70 billion United States dollars. Yet the tax-to-gross domestic product ratio remains low at approximately 13 to 14 percent, limiting funding for the proposed budget of around 84 trillion Uganda shillings. Proposed measures, including excise duty increases aimed at raising additional revenue such as 4.8 trillion Uganda shillings in new measures, must be scrutinized against the monetization theme.
Specific proposals carry both potential and risks. For example, increasing fuel excise duty by 200 Uganda shillings per litre on petrol and diesel, amid Middle East tensions already pressuring pump prices, will raise transport costs for people, goods, and services. This has deleterious ripple effects on food prices, logistics, and small and medium sized enterprise viability, where energy costs already form a large share of expenses, risking contractionary impacts contrary to Keynesian stabilization.
Doubling cement excise duty from 500 to 1,000 Uganda shillings per 50 kilograms will exacerbate the housing deficit of roughly 2.4 million units, inflate construction and real estate costs, delay affordable housing projects, raise public infrastructure expenses through price variations, and burden taxpayers while constraining job creation in a key sector. Taxation on digital services, including rates on internet data, value added tax on digital services, and mobile money transactions, should be reviewed and potentially halved to promote inclusion and digital transformation rather than hinder it.
Expanding incentives for smartphone assembly, such as zero-rating imported parts to make devices below 100,000 Uganda shillings (lowest average cost of a basic smart phone is 150,000 – 250,000) more accessible, would increase penetration, e-commerce, internet usage, and generate broader tax revenue downstream. The reduction in vehicle import age from 15 to 13 years supports environmental goals, while raising the used clothes surcharge from 15 percent to 30 percent, with a path toward banning imports in 2027/28, protects local textile potential and industrialization. Increasing the value added tax registration threshold from 150 million to 250 million Uganda shillings provides welcome relief for small businesses by reducing compliance burdens.
There are ways and means to generate revenue while growing the economy and supporting the private sector. Aggressive broadening of the tax base through better formalization, digital tracking and high-net-worth compliance through partnerships with savings and credit cooperatives, private organizations, and tax education could add 0.5 to 1 percent of gross domestic product annually — hundreds of billions of Uganda shillings — as demonstrated by successful digital registration efforts in countries like Ethiopia.
Productive incentives such as zero-rating key inputs for manufacturers, agro-processors, and renewable energy projects, alongside halving excise duties on electricity for small and medium sized enterprises (which face energy costs around 35 percent of operations), could boost output, employment, and downstream value added tax and income tax collections by 0.3 to 0.5 percent of gross domestic product growth, similar to Vietnam’s foreign direct investment strategies. Lowering barriers to smartphones and internet access would expand the digital economy and indirect revenues.
Environmental levies on inefficient imports paired with rebates, expanded public-private partnerships for infrastructure with revenue sharing, improved management of state-owned enterprises, and user fees on enhanced services offer additional streams. Countries with high tax-to-gross domestic product ratios above 40 percent, such as Denmark and Sweden, succeed through broad consumption and labor tax bases, competitive corporate rates, and efficient public services that support rather than stifle private enterprise.
A critical enabler for these gains is curbing smuggling, which drains substantial revenue. Estimates indicate losses of around 509 million United States dollars annually through lake smuggling networks alone (roughly 1.9 trillion Uganda shillings), with broader import tax evasion ranging from 3.1 to 15.3 percent of net tax revenues — potentially hundreds of billions to over a trillion Uganda shillings yearly. Nimble technical approaches include scaling non-intrusive cargo scanners at borders, real-time data integration via electronic fiscal systems, risk-based targeting using data analytics, and regional cooperation for image-sharing of scanned goods with neighbors like Kenya. These methods could recover a significant portion of lost revenues — potentially 0.5 percent or more of gross domestic product — by improving detection without blanket disruptions to legitimate trade.
Furthermore, the Uganda Revenue Authority can enhance efficiency through trust-centered strategies rooted in modern public administration and behavioral economics. Rather than relying on aggressive audits or harassment that erode business confidence and deter investment, it should prioritize predictive analytics for risk management, transparent communication of compliance benefits, voluntary disclosure programs with incentives, and capacity-building partnerships that treat taxpayers as collaborators in national development. Strengthening internal integrity, professional codes, and data-driven facilitation — while minimizing arbitrary demands — aligns with Smith’s emphasis on convenient and certain taxation, fosters voluntary compliance, and supports creative destruction by allowing innovative firms to thrive.
This approach would broaden the base sustainably while upholding President Museveni’s private-sector-led vision.
Rigorous monitoring with sunset clauses and impact assessments will ensure alignment with commercial agriculture, industrialization, and President Museveni’s private-sector-led principles. By embedding Adam Smith’s efficiency, Keynes’ demand sensitivity, and innovation focus, Uganda can sustainably raise the tax-to-gross domestic product ratio toward 15 to 18 percent, navigate external shocks, close housing and opportunity deficits, and unleash inclusive, innovation-fueled growth under Vision 2040.
*Morrison Rwakakamba is a coffee farmer and entrepreneur. He can be reached via email mrwakakamba@gmail.com
