Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/248377 
Year of Publication: 
2021
Series/Report no.: 
WIDER Working Paper No. 2021/163
Publisher: 
The United Nations University World Institute for Development Economics Research (UNU-WIDER), Helsinki
Abstract: 
Presumptive tax, a final tax on business income, was introduced in Uganda in 1997. The latest reform to the regime in July 2020 sought to make the system more progressive, simpler and fairer to small firms. In this work, we evaluate the reform, focusing on its revenue implications based on simulations using UGAMOD, a tax-benefit microsimulation model for Uganda. Our findings suggest that, assuming full compliance, the reform reduces tax revenue potential by between 48-72 per cent from the previous rules. Interviews with staff at the Uganda Revenue Authority point to further challenges with the new rules, including slow implementation, ineffective enforcement and enduring complexity. To address these concerns, we modelled a number of hypothetical reform scenarios, including a 1 per cent and 1.5 per cent flat tax regimes for small businesses with turnover between UGX10-150 million. A low flat tax rate would be a major improvement to the existing presumptive tax regime, as it satisfies the calls for further simplification, is estimated to generate more short-term revenue than the current regime based on the modelling, and has realistic potential to attract more presumptive taxpayers over time.
Subjects: 
presumptive tax
tax administration
small businesses
tax compliance
impact evaluation
microsimulation modelling
JEL: 
H25
H71
O17
Persistent Identifier of the first edition: 
ISBN: 
978-92-9267-103-7
Document Type: 
Working Paper

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