In a move aimed at stimulating entrepreneurship and formal business growth, government has announced a three-year income tax holiday for start-up businesses owned by Ugandan citizens and established after July 1, 2025.
The announcement was made by Finance Minister Matia Kasaija on Thursday while delivering the 2025/26 national budget to Parliament.
The new measure is among several tax reforms intended to raise an additional Shs 538.6 billion in domestic revenue, support enterprise development, and boost compliance as part of the broader Shs 72.4 trillion budget strategy.
“Madam Speaker, an additional revenue of Shs 538.6 billion will be raised from new tax policy measures that were approved by Parliament,” Kasaija said. “In addition to raising revenue, the measures will support the growth of businesses and the economy,” he added.
The income tax holiday stands out as a bold move aimed at removing a key barrier to entry for early-stage businesses high startup costs.
By exempting qualifying businesses from income tax for the first three years, government hopes to encourage innovation, job creation, and formalization in a sector dominated by informal enterprises.
The policy specifically targets start-ups wholly owned by Ugandan nationals, reinforcing a pro-local ownership approach in government’s economic planning.
In addition to the tax holiday, the government has removed capital gains tax on individuals transferring assets to companies they own and control. “This tax burden has been removed,” said Kasaija, “to encourage the transition to more structured corporate entities.”
To further ease financial pressures on entrepreneurs, stamp duty on mortgages and agreements has also been scrapped. The reform is expected to lower the cost of accessing credit for both individuals and businesses.
Taxpayers with outstanding liabilities will benefit from another incentive an extension of the waiver on penalties and interest, provided they clear the 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,” Kasaija said.
On the compliance front, government has revised penalties under the Electronic Fiscal Receipting and Invoicing System (EFRIS).
Previously, non-compliance attracted a fixed fine of Shs 6 million per invoice. That has now been replaced with a more equitable approach: a penalty equal to twice the tax owed.
“The system promotes transparency and creates an even-playing field,” Kasaija urged, encouraging taxpayers to embrace digital invoicing.
Additional tax measures include an increase in excise duty on cigarettes from Shs 55,000 to Shs 65,000 per 1,000 sticks for soft cap brands with even higher rates for products from outside the East African Community.
Excise duty on beer made with locally malted barley has been removed, while tax on beer brewed with 75% local raw materials has been increased to ensure tax parity.
Trade-related taxes have also been adjusted. A 1% import declaration fee will now apply to taxable goods under the EAC Common External Tariff, while a new export levy of USD 10 per metric ton has been imposed on wheat bran, cotton cake, and maize bran to encourage value addition at home.
Importers in the textile sector will benefit from duty cuts. The import duty on fabrics drops from USD 3 to USD 2 per kilogram, while garments see a reduction from USD 3.5 to USD 2.5 per kilogram or 35%, whichever is higher.
“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 said.
To finance the 2025/26 budget, government plans to raise Shs 33.94 trillion from tax revenue and Shs 3.28 trillion in non-tax revenue. This will be supplemented by Shs 11.38 trillion in domestic borrowing and Shs 13.41 trillion from external sources.
