Uganda: Govt Offers Three-Year Tax Holiday to Startups in Shs 72.4 Trillion National Budget

The government has introduced a three-year income tax holiday for new, Ugandan-owned startup businesses, effective July 1, 2025.

The announcement was made by Finance Minister Matia Kasaija on Thursday as he presented the Shs 72.4 trillion national budget for the 2025/26 financial year to Parliament.

The new measure is part of a broader package of tax reforms aimed at enhancing domestic revenue collection while supporting private sector growth.

“Madam Speaker, an additional revenue of Shs 538.6 billion will be raised from new tax policy measures that were approved by Parliament,” said Kasaija. “In addition to raising revenue, the measures will support the growth of businesses and the economy.”

The income tax holiday is expected to reduce entry barriers for early-stage businesses, particularly those owned entirely by Ugandan citizens.

The measure is designed to encourage innovation, job creation, and the formalisation of businesses, many of which currently operate informally.

To complement this, the government has eliminated capital gains tax for individuals who transfer assets to companies they own and control.

This aims to encourage small business owners to transition into more structured and transparent corporate entities.

In a bid to make credit more affordable, stamp duty on mortgages and agreements has been scrapped.

The government also announced an extended waiver on penalties and interest for taxpayers with outstanding liabilities–provided they pay their principal tax by June 30, 2026.

“This waiver is intended to provide relief to businesses and individuals to enable them to settle outstanding tax liabilities and resume normal operations,” said Kasaija.

Compliance penalties have also been revised under the Electronic Fiscal Receipting and Invoicing System (EFRIS).

Previously, non-compliance incurred a fixed fine of Shs 6 million per invoice. This has now been replaced by a penalty equal to twice the tax due, a move expected to enhance fairness and promote digital invoicing.

Sector-Specific Tax Adjustments

The budget includes changes aimed at supporting local industries and aligning with regional trade policies:

Excise duty on cigarettes has been increased from Shs 55,000 to Shs 65,000 per 1,000 sticks for soft cap brands.

Excise duty on beer made from locally malted barley has been removed, while beer made from 75% local raw materials will now face higher tax to ensure parity.

In the textile sector, import duties on fabrics have been reduced from Shs 11,400 to Shs 7,600 per kilogram, and on garments from Shs 13,300 to Shs 9,500 per kilogram, or 35%, whichever is higher.

To encourage value addition within Uganda, the government has introduced a Shs 38,000 (USD 10) per metric ton export levy on wheat bran, cotton cake, and maize bran.

A 1% import declaration fee will also apply to taxable goods under the East African Community Common External Tariff.

Budget Financing Breakdown

To fund the Shs 72.4 trillion budget, the government plans to mobilise resources from the following sources:

Shs 33.94 trillion from tax revenue

Shs 3.28 trillion from non-tax revenue

Shs 11.38 trillion from domestic borrowing

Shs 13.41 trillion from external financing

“These changes reflect our continued commitment to building a fairer and more predictable tax system that supports enterprise, encourages compliance, and funds national priorities,” Kasaija concluded.

The 2025/26 budget signals Uganda’s intention to strike a balance between revenue generation and private sector support especially for local startups poised to drive the country’s future economic growth.

By Nile Post.