The current policy of the Government of Uganda is to move away from over reliance on foreign assistance to meet the annual National budget. Government’s aim is to finance the budget through collection of local taxes. There are however numerous challenges in collecting the taxes including the following:
- Uganda has a narrow tax base from which taxes can be collected
- Uganda Revenue Authority (URA) has greatly improved the tax administration but there is still a lot to be done for URA to collect taxes from all income earners. There are a number of income earners especially in agriculture sector who are not taxed. The government should establish a rational, modern, and efficient tax system.
- The majority of businesses in Uganda are quite small but profitable and majority of the small businesses are not taxed. This includes Matatu operators, butchers, and bars among others.
- Women play a key role in most of the small businesses but no deliberate attempt to bring the women into the formal economy.
- A number of taxes are not understood by taxpayers and sometime by staff from URA hence creating resentment. There is a need for a continuous awareness programme being conducted by URA.
- Most workers in Uganda are typically employed in agriculture or in small, informal enterprises. Economic activities in these sectors of the economy is generally unrecorded which means that many people who work and earn a livelihood here are not taxed thereby keeping a potential portion of the tax base out of the tax net.
- Corruption is one of major challenge in broadening the tax base in Uganda. There are many cases of stolen public funds appearing in the media.
- There are also challenges of uneven income distribution in Uganda. There are quite many Ugandan who do not earn a dollar per day
- There is no clear accountability of how the taxes have been used and therefore the taxpayers do not see the benefits of paying taxes.