Parliament recently rejected a government proposal to tax remittances from Ugandans working abroad, though a 30% tax on second-hand clothes (Mivumba) was approved alongside an increase in the VAT threshold to Shs 300m
The Parliament of Uganda has concluded a marathon legislative session centered on the Tax Amendment Bills of 2026, resulting in a series of landmark decisions that will fundamentally reshape the nation’s economic landscape. In a rare display of legislative pushback, lawmakers successfully blocked a controversial government proposal to tax diaspora remittances, while simultaneously approving a significant hike on imported second-hand clothing and adjusting the Value Added Tax (VAT) threshold to protect small-scale entrepreneurs.
These reforms come at a critical juncture as the Ministry of Finance seeks to mobilize domestic revenue to fund a record Shs 84.3 trillion national budget. The resulting decisions reflect a delicate balancing act between the need for government revenue and the protection of the average Ugandan’s purchasing power.
The Diaspora Victory: Remittances Remain Untouched
The most heated debate in the House centered on the government’s proposal to impose a tax on remittances sent home by Ugandans working abroad, colloquially known as “Kyeyo” workers. The Ministry of Finance had argued that this untapped revenue stream was essential for national development.
However, the proposal met a wall of resistance from both the opposition and the ruling party backbenchers. Critics pointed out that diaspora remittances are a vital lifeline for millions of households, funding education, healthcare, and small-scale construction.
The Economic Argument
Data from the Bank of Uganda played a pivotal role in the rejection. With remittances contributing an estimated USD 1.4 billion (Shs 5.2 trillion) annually to the economy, experts warned that taxing these inflows would:
- Encourage the use of “informal” or “black market” channels for sending money.
- Reduce the disposable income of rural families who rely on these funds for survival.
- Discourage the diaspora from investing in government bonds and local real estate.
By rejecting the tax, Parliament has signaled that it views the diaspora not merely as a source of tax revenue, but as a critical developmental partner that should be incentivized rather than penalized.
The “Mivumba” Strike: A 30% Blow to Second-Hand Clothes
While the diaspora celebrated, the domestic retail sector is bracing for impact. Parliament officially approved a 30% tax on imported second-hand clothes, commonly known as Mivumba. This move is part of the government’s long-standing “Build Uganda, Buy Uganda” (BUBU) policy, aimed at reviving the local textile industry.
Protectionism vs. Affordability
The debate over Mivumba has always been a class issue. For decades, second-hand clothing has provided affordable, high-quality options for the majority of Ugandans. Proponents of the tax, including the Ministry of Trade and Industry, argue that the influx of cheap used clothing from the West has “killed” local cotton ginneries and garment factories like Nytil and Fine Spinners.
| Stakeholder | Perspective on the 30% Tax |
| Local Manufacturers | Support the move as it levels the playing field for locally produced garments. |
| Traders (Kikuubo) | Warn of massive price hikes and potential job losses for thousands of street vendors. |
| Consumers | Express concern that local textiles are currently too expensive or lack the variety of the Mivumba market. |
The government hopes this tax will force a shift in consumer behavior, but the challenge remains whether the local industry can scale up fast enough to meet the demand for affordable clothing.
Relief for Small Businesses: The VAT Threshold Shift
In a major win for the “Mama Mbogas” and small-scale traders, Parliament approved an increase in the Value Added Tax (VAT) registration threshold from Shs 150 million to Shs 300 million.
Simplifying the Tax Base
Previously, any business with an annual turnover of Shs 150 million was required to register for VAT, which involved complex bookkeeping and regular filing with the Uganda Revenue Authority (URA). For many growing businesses, this administrative burden was a deterrent to formalization.
By doubling the threshold to Shs 300 million, the government is effectively:
- Reducing Compliance Costs: Small businesses can now focus on growth without the immediate pressure of VAT filing.
- Improving URA Efficiency: The tax body can now focus its enforcement resources on larger, high-value taxpayers rather than chasing thousands of micro-enterprises.
- Curbing Inflation: By exempting smaller retailers from VAT, the government hopes to keep the final prices of essential goods stable for the end consumer.
The Broader Fiscal Context
These tax reforms are not happening in a vacuum. Uganda is currently navigating a difficult fiscal path characterized by rising public debt and a push for greater financial self-reliance. The Tax Procedures Code (Amendment) Bill, 2026, which accompanied these changes, also introduced stricter penalties for tax evasion and new digital tracking requirements for manufacturers.
The Uganda Manufacturers Association (UMA) has welcomed the VAT threshold change but remains cautious about the increased cost of raw materials. Meanwhile, civil society organizations have praised the rejection of the diaspora tax but urged the government to ensure that the revenue from the Mivumba tax is directly reinvested into the local cotton value chain.
A New Chapter for the Ugandan Taxpayer
The 2026 tax reforms reflect a Parliament that is becoming increasingly sensitive to the economic realities of its constituents. By protecting diaspora funds and shielding small businesses from VAT, lawmakers have provided much-needed breathing room for the private sector.
However, the 30% tax on second-hand clothes remains a bold and risky gamble. Its success will be measured not just by the revenue it collects, but by whether it successfully births a thriving “Made in Uganda” fashion industry that can clothe the nation. As the new financial year approaches, Ugandans will be watching closely to see if these shifts lead to the promised economic transformation or simply higher prices at the local market.
