Examining the impact of domestic taxes on Uganda’s economic growth.

Abstract

In Uganda, where more than 80% of government budget expenditure depends on taxes, policymakers continue to seek an appropriate tax burden and composition that supports robust but inclusive macroeconomic expansion. The general objective of the study was examining the impact of domestic taxes on Uganda’s economic growth. This study used a descriptive research design to obtain information concerning examining the impact of domestic taxes on Uganda’s economic growth. The study was carried out using publicly available reports by Uganda revenue authority, Ministry of finance planning and economic development and bank of Uganda covering domestic taxes and Uganda’s economic growth. The study population broadly comprised of documents from URA, Bank of Uganda and ministry of fiancé planning and economic development. The data was obtained through extracting relevant information from already published printed and online documents. To control quality, the study considered reliability and validity. Reliability was based on whether the sources used are from recognized institutions in the industry. Validity was achieved through comparing the data with the objectives and only data that answered the study objectives and questions was considered and sieved from the voluminous reports which were reviewed. Results revealed that between 2019 and 2024, Uganda experienced a positive correlation between personal tax average filing rate and GDP growth (R= 0.332, P> 0.05). This means that, as more tax payers comply by filing tax returns, there is a likelihood that more GDP growth will be registered. Results show that Corporate Income Tax (UGX) is inversely related to GDP Growth. There is thus a negative correlation by -0.604 but not significant though (R= -0.604, p> 0.05). This means that increased Corporate Income Tax damages GDP growth as companies become constrained to invest more due their profits being eaten up into tax. Results show that VAT had a positive but insignificant contribution to GDP growth. This was seen with a correlation of 0.711 (r= 0.711, P> 0.05). This means that improvements in VAT collections are likely to lead to enhanced GDP growth, holding other factors constant. The study concludes that personal income remains a big contributor to tax revenue and better personal filling is needed to improve tax collections. The inverse link between corporate income tax and GDP growth is a cause of concern as Uganda needs big companies that can drive the economy yet if these are not taxed properly or fairly and appropriately, they may fail and thus cause negative thrusts in the economy. Those qualifying for VAT must have their capacities built to contribute substantially to the cause of economic growth through increased GDP. On policy implications, this study has informed policy makers that personal income is an important contributor to the tax base and GDP which must be studied further to establish the level of personal taxes that would remain good enough not to influence evasion and avoidance. Big companies operating in Uganda like MTN, Nile Breweries, Airtel and Uganda Breweries need to be taxed carefully not to scare them away from deepening and widening investment. VAT must be collected from whoever qualifies so that every potential tax payer is netted to have a contribution to the economy. The study recommends fair assessment of personal income taxes by authorities like URA to increase compliance. The country should desist from unfair tax exemptions to some big companies and audit of all the current tax holidays and exemptions and have those not justifiable cancelled. This can be well accomplished by the IGG, auditor general and URA. VAT as a good contributor to the economy must be collected more electronically, the same way Electronic Fiscal Receipting and Invoicing Solution (EFRIS) does. This study was based on secondary data and thus does not have current opinions of experts in Uganda. The study looked at VAT, personal income tax and corporate income tax as contributors to GDP yet there are other non-economic factors like politics, level of technology and quality of the population among others that determine the GDP of a country.