Tax Revenue Performance

Improving Tax Revenue Performance in Uganda

Although there were efforts to improve tax revenue performance, tax revenues have not been responsive to overall GDP growth. This has resulted in a tax-to-GDP ratio that has stagnated at about 13% for some time. The stagnant tax effort has constrained government in its quest to expand public expenditure to support improved service delivery. This policy brief, based on a research paper that examined the principal determinants of tax revenue performance in Uganda, discusses how Uganda’s tax revenue performance can be improved. Bases on auto regressive distributed lag econometric methods, our analysis shows that dominance of the agricultural and informal sectors pose the largest impediments to tax revenue performance in Uganda. In addition trade openness, industrial sector growth and development expenditures are positively associated with tax revenue performance. We propose policies to support the development of value added linkages between agricultural and industrial sectors while emphasizing the need to unlock the potentially large contributions of the informal sector with a view of widening the tax base.

Tax Revenue Effects of Sectoral Growth and Public Expenditure in Uganda

There is a growing strand of literature on the determinants of tax revenue. This paper largely contributes to this tax revenue performance in developing countries, particularly in Sub Saharan Africa. More specifically they estimate the tax elasticities of sectoral output growth and public expenditure. The unique features of this paper are twofold: Firstly, a simple analytical model for tax revenue performance is developed taking into account some structural features pervasive in most developing countries with large informal sectors. Secondly, they test the model predictions on Ugandan time series data using ARDL bounds testing techniques. Results indicate that dominance of the agricultural and informal sectors pose the largest impediments to tax revenue performance. In addition development expenditures, trade openness, and industrial sector growth are positively associated with tax revenue performance. We propose policies to support the development of value added linkages between agricultural and industrial sectors while emphasizing the need to unlock the potentially large contributions of the informal sector with a view of widening the tax base.