KACITA and other traders are pushing for a VAT threshold hike to 500 million UGX to shield small businesses from rising costs in the upcoming 2026/27 financial year.
As the 2026/27 Financial Year approaches, a high-stakes tug-of-war is unfolding between Uganda’s private sector and the taxman. At the heart of this conflict is a bold proposal from the Kampala City Traders Association (KACITA) and various regional trade unions: a massive hike in the Value Added Tax (VAT) registration threshold from the current 150 million UGX to 500 million UGX.
For the traders, this isn’t just a request for a policy tweak; it is a plea for survival. As inflation, rising operational costs, and global supply chain disruptions squeeze profit margins, Uganda’s small and medium enterprises (SMEs) argue that the current tax regime is no longer a ladder to growth, but a ceiling that keeps them in the “informal” shadows.
The Current Landscape: Why 150 Million UGX is “Outdated”
The current VAT threshold of 150 million UGX has remained largely static while the economic reality in Uganda has shifted. Traders argue that in 2026, an annual turnover of 150 million UGX (roughly 12.5 million UGX per month) does not represent a “large” or even “medium” business.
“By the time you pay rent in downtown Kampala, cover electricity, transport goods from the border, and pay your staff, a 150-million-shilling turnover often leaves you with barely enough profit to feed a family,” says a KACITA representative.
Under the current rules, once a business hits that 150-million mark, they must register for VAT, adding a 18% tax to their goods and services. For small shops competing with informal street vendors who pay no VAT, this 18% price hike often drives customers away, effectively punishing businesses for growing.
The KACITA Proposal: Shielding the “Engine of the Economy”
KACITA’s push for a 500 million UGX threshold is designed to create a “buffer zone” for emerging businesses. The argument is built on three main pillars:
1. Reducing the Compliance Burden
VAT compliance is notoriously complex. It requires formal bookkeeping, EFRIS (Electronic Fiscal Receipting and Invoicing System) integration, and often the hiring of a professional accountant. For a shopkeeper with a modest turnover, these administrative costs can outweigh the actual tax paid. By raising the threshold, thousands of small traders would be moved from the VAT bracket to the simpler Turnover Tax (TOT) regime, allowing them to focus on operations rather than paperwork.
2. Leveling the Playing Field
The “informal sector” remains a massive challenge in Uganda. When formal small businesses are weighed down by VAT, they become less competitive than informal traders. KACITA argues that a higher threshold would encourage more businesses to “formalize” and register with the Uganda Revenue Authority (URA) because the immediate tax burden would be lower and more manageable.
3. Absorbing Global Inflation
The cost of importing goods—from electronics to textiles—has surged. A turnover of 150 million UGX today buys significantly less stock than it did five years ago. Traders argue that they are being pushed into the VAT bracket not because their businesses are getting “bigger,” but simply because the price of the goods they sell has risen due to global inflation.
The URA and Ministry of Finance Dilemma
While the traders’ arguments are rooted in the reality of the streets, the Ministry of Finance and the URA face a different reality: a growing national debt and a desperate need for domestic revenue.
Government technocrats have expressed several concerns regarding the 500 million UGX hike:
- Revenue Leakage: Moving thousands of taxpayers out of the VAT bracket could lead to a significant short-term dip in tax collection.
- The “Vat Chain” Break: VAT is a consumption tax designed to be collected at every stage of the supply chain. If a large number of retailers are exempt, the “chain” is broken, which can sometimes make it harder for the government to track the movement of goods from manufacturers to consumers.
- Potential for Under-Reporting: There is a fear that some larger businesses might split their operations into smaller entities to stay under the new 500 million UGX limit.
A Comparative Look: The Threshold Shift
| Feature | Current Status (2025/26) | Proposed Status (2026/27) |
| VAT Threshold | 150 Million UGX | 500 Million UGX |
| Tax Rate | 18% | 18% (but for fewer firms) |
| Target Group | Micro & Small Businesses | Medium & Large Businesses |
| Compliance Tool | EFRIS (Mandatory) | Simplified TOT for most |
| Goal | Broad Revenue Base | SME Growth & Formalization |
The Social Impact: Beyond the Balance Sheet
The debate isn’t just about numbers; it’s about the social fabric of Uganda’s urban centers. Small businesses are the primary employers of the youth in Kampala, Mbarara, Gulu, and Jinja. KACITA warns that if the tax burden remains unchanged in the 2026/27 budget, we could see a wave of shop closures and increased unemployment.
Furthermore, the “EFRIS strikes” of the past two years have shown that traders are willing to close their doors in protest if they feel the tax system is unfair. Raising the threshold is seen by political analysts as a potential “peace offering” from the government to the trading community ahead of a sensitive economic year.
The Road Ahead: The 2026/27 Budget Speech
The final decision now rests with the Parliament’s Committee on Finance and the Ministry of Finance. Early whispers from the corridors of power suggest the government might consider a “middle ground”—perhaps raising the threshold to 250 million or 300 million UGX—to balance the need for revenue with the survival of small businesses.
However, KACITA remains firm. They argue that anything less than 500 million UGX is a “plaster on a deep wound.” As the budget negotiations intensify, the trading community is watching closely.
Conclusion
The push for a 500 million UGX VAT threshold is a litmus test for Uganda’s economic policy. It asks a fundamental question: Should the tax system focus on squeezing as much as possible from the current formal players, or should it lower the barriers to entry to grow the total number of taxpayers in the long run?
