Uganda Offers Three-Year Tax Holiday. In a bold move to stimulate formal entrepreneurship and expand the country’s tax base, Uganda’s Finance Minister, Hon. Matia Kasaija, has announced a comprehensive tax reform package under the 2025/2026 national budget.
The reforms include a three-year income tax holiday for new Ugandan-owned startups beginning operations after July 1, 2025.
Speaking during the presentation of the UGX 72.4 trillion ($19.4 billion) budget to Parliament, Minister Kasaija revealed that the new tax policies aim to support enterprise growth, reduce the cost of doing business, and boost domestic revenue by UGX 538.6 billion ($144 million).
“These tax measures will not only raise additional revenue but also support the growth of businesses and the economy at large,” Kasaija noted.
Uganda Offers Three-Year Tax Holiday: Incentivizing Ugandan Entrepreneurs
The income tax exemption, according to the Ministry of Finance, is designed to encourage innovation and reduce early-stage barriers for startups, particularly in a sector still dominated by informal enterprises.
To qualify, businesses must be 100% owned by Ugandan citizens and incorporated after the stated commencement date.
Tax analysts suggest this measure could increase formal registration and voluntary compliance among micro and small enterprises — a recurring challenge in Uganda’s tax landscape.
Reforms to Encourage Corporate Structuring
In addition to the startup relief, the government has scrapped capital gains tax on asset transfers by individuals to companies they own and control. This is intended to promote the transition of informal operations into structured entities.
Also announced was the removal of stamp duty on mortgages and contractual agreements, a move expected to ease access to credit for both individuals and small businesses.
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Temporary Waiver for Taxpayers in Arrears
To aid struggling businesses and individuals, the Uganda Revenue Authority (URA) will offer a waiver on penalties and interest for outstanding tax liabilities — if principal amounts are cleared by June 30, 2026.
“This waiver is a form of relief that allows taxpayers to reset and resume operations without the weight of cumulative penalties,” Kasaija said.
Compliance Tightening via EFRIS
On the compliance front, revisions have been made to penalties under the Electronic Fiscal Receipting and Invoicing System (EFRIS).
Previously, non-compliance attracted a fixed UGX 6 million fine per invoice. Going forward, the penalty will be set at twice the value of the unpaid tax, a change aimed at improving fairness and proportionality in enforcement.
Kasaija emphasized the importance of EFRIS in fostering transparency and leveling the competitive playing field.
Adjustments to Excise, Trade and Customs Duties
The tax reform package also includes multiple excise duty revisions:
- Cigarettes (soft cap brands) now attract UGX 65,000 per 1,000 sticks, up from UGX 55,000.
- Excise duty on beer brewed with locally malted barley has been removed.
- Beer produced using at least 75% local materials will now face a higher excise rate to align tax burdens.
In trade-related measures:
- A 1% import declaration fee will now be charged on all taxable goods under the EAC Common External Tariff.
- A new export levy of $10 per metric ton applies to raw agricultural outputs such as wheat bran, maize bran, and cotton cake — a move aimed at promoting domestic value addition.
- Import duty on fabrics will drop from $3 to $2/kg, while duty on garments will reduce from $3.5 to $2.5/kg or 35%, whichever is higher.
Funding Uganda’s Fiscal Agenda
To finance the ambitious 2025/2026 budget, Uganda plans to mobilize:
- UGX 33.94 trillion from tax revenue
- UGX 3.28 trillion from non-tax sources
- UGX 11.38 trillion from domestic borrowing
- UGX 13.41 trillion from external financing
Kasaija reiterated that these changes align with the government’s goal to strengthen tax fairness, boost formal business participation, and create a more predictable policy environment.
