Tax Burden and Policy Uncertainty Squeeze Uganda’s Small Businesses
Kampala, Uganda
A recent business report has highlighted growing concerns among Ugandan small and medium enterprises (SMEs) over high taxes, overlapping policies, and political uncertainty that are slowing growth and reducing investor confidence.
According to the report, the combination of a 10% withholding tax on commissions, unclear compliance rules, and unpredictable political developments is creating a challenging environment for entrepreneurs.
“Instead of helping us grow, the system feels like it’s designed to punish us,” says Pauline Atukunda, a small business owner in Kampala’s central business district.
Key Findings
Tax pressures are rising: Many SMEs struggle to comply with multiple layers of taxation, including withholding taxes, value-added taxes, and sector-specific levies.
Political uncertainty impacts investment: With general elections slated for 2026, business owners are cautious, fearing sudden policy changes or instability.
Liquidity and cash flow constraints: SMEs report that higher taxes and fees reduce available capital, affecting expansion plans and employment growth.
Sectoral impact: Trade, services, and small-scale manufacturing are among the most affected, with some businesses considering relocating to less restrictive environments.
Voices from the Field
Pauline Atukunda, Kampala SME Owner:
“I’ve had to reduce staff because my profit margins are shrinking. Taxes and bureaucratic rules are making it hard to keep the business running.”
Joseph Okello, Accountant and Tax Consultant:
“Many SMEs are caught in a trap. They want to comply, but the regulations are overlapping and confusing. This can discourage entrepreneurship and foreign investment alike.”
Lilian Namata, Policy Analyst at Uganda Small Business Association (USBA):
“SMEs are the backbone of Uganda’s economy. If we don’t streamline taxation and policy clarity, we risk stifling the sector that creates the majority of jobs.”
Why It Matters
Economic Growth: SMEs contribute over 50% of Uganda’s GDP and employ more than 70% of the workforce. Strangling them could slow national growth.
Investment Climate: Domestic and foreign investors monitor SME health as a key indicator of business climate stability.
Job Creation: Reduced SME capacity directly affects employment, particularly for youth and women.
Policy Effectiveness: Ensuring clarity in taxation and regulatory compliance is essential for promoting entrepreneurship.
What to Watch For
- Government Response: Will authorities consider reforms to simplify taxation for SMEs?
- Business Association Advocacy: Expect lobbying efforts from groups like USBA and Private Sector Foundation Uganda.
- Market Adjustments: SMEs may shift toward informal markets or digital commerce to circumvent heavy tax burdens.
- Election-Linked Policies: Upcoming political campaigns could influence SME-friendly policy proposals.
