[Uganda] Tax regime remains highest in East Africa

The Ministers of Finance in Burundi, Kenya, Rwanda, Tanzania, and Uganda have read their respective budgets for the financial year 2023/ 2024 and Uganda’s PAYE rates are still East Africa’s highest, Monitor reports.

Gross Domestic Product (“GDP”) for the financial year 2022/ 2023 (“FY 2022/2023”) in Kenya, Rwanda, Tanzania, and Uganda has generally been projected to grow with Rwanda leading the pack at 6.2 per cent. However, Tanzania has kept its inflation rate at an average of 4 per cent as of May 2023, while Burundi, Kenya, Rwanda, and Uganda have seen spikes in their inflation rates.

Despite higher inflation and an increase in interest rates by the U.S. Federal Reserve, the Uganda Shilling remained resilient against the USD. The broader issue for most East African states reportedly surrounds the sustainability of their debt and how the debt commitments will be funded in FY 2023/2024.

To fund debt payments, several tax measures were suggested across the East African states. Kenya, Tanzania, and Rwanda have proposed tax changes, some of which are anchored in increasing the applicable tax rates. However, Uganda’s tax changes do not necessarily increase tax rates but instead aim to establish an efficient tax administration system and reduce revenue leakage. 

The Monitor suggests that a look at recently proposed tax changes (both direct and indirect) across some of the East African countries could provide answers, and demonstrate whether there is room left for increasing tax rates in Uganda.

Kenya reportedly introduced two additional tax bands for its PAYE of 32.5 per cent and 35 per cent - the highest marginal tax rate - respectively. The Kenyan National Treasury argued that this proposal would make the PAYE bands more progressive with those who earn being able to pay more tax. 

Uganda’s lawmakers last increased the country’s marginal PAYE rate to 40 per cent on July 1, 2012. With Uganda’s PAYE rates the highest across East Africa, there is limited room to increase this rate. But in Kenya, in addition to the new tax bands, the government has also suggested that employees will be paying a National Health Insurance Fund levy of 2.7 per cent and 1.5 per cent of their gross salary to support the country’s affordable housing programme.

Uganda doesn’t have any similar levies proposed this year but current discussions on the National Health Insurance Scheme reportedly suggest it may only be a matter of time. Such a proposal would require a review of those current high PAYE rates.

Source: Monitor

The Ministers of Finance in Burundi, Kenya, Rwanda, Tanzania, and Uganda have read their respective budgets for the financial year 2023/ 2024 and Uganda’s PAYE rates are still East Africa’s highest, Monitor reports.

Gross Domestic Product (“GDP”) for the financial year 2022/ 2023 (“FY 2022/2023”) in Kenya, Rwanda, Tanzania, and Uganda has generally been projected to grow with Rwanda leading the pack at 6.2 per cent. However, Tanzania has kept its inflation rate at an average of 4 per cent as of May 2023, while Burundi, Kenya, Rwanda, and Uganda have seen spikes in their inflation rates.

Despite higher inflation and an increase in interest rates by the U.S. Federal Reserve, the Uganda Shilling remained resilient against the USD. The broader issue for most East African states reportedly surrounds the sustainability of their debt and how the debt commitments will be funded in FY 2023/2024.

To fund debt payments, several tax measures were suggested across the East African states. Kenya, Tanzania, and Rwanda have proposed tax changes, some of which are anchored in increasing the applicable tax rates. However, Uganda’s tax changes do not necessarily increase tax rates but instead aim to establish an efficient tax administration system and reduce revenue leakage. 

The Monitor suggests that a look at recently proposed tax changes (both direct and indirect) across some of the East African countries could provide answers, and demonstrate whether there is room left for increasing tax rates in Uganda.

Kenya reportedly introduced two additional tax bands for its PAYE of 32.5 per cent and 35 per cent - the highest marginal tax rate - respectively. The Kenyan National Treasury argued that this proposal would make the PAYE bands more progressive with those who earn being able to pay more tax. 

Uganda’s lawmakers last increased the country’s marginal PAYE rate to 40 per cent on July 1, 2012. With Uganda’s PAYE rates the highest across East Africa, there is limited room to increase this rate. But in Kenya, in addition to the new tax bands, the government has also suggested that employees will be paying a National Health Insurance Fund levy of 2.7 per cent and 1.5 per cent of their gross salary to support the country’s affordable housing programme.

Uganda doesn’t have any similar levies proposed this year but current discussions on the National Health Insurance Scheme reportedly suggest it may only be a matter of time. Such a proposal would require a review of those current high PAYE rates.

Source: Monitor