Government Unveils Landmark Tax Holidays for Local Startups in 2025-26 Budget

In a significant move to ignite entrepreneurship and formalise its burgeoning business sector, the Ugandan government has announced a three-year income tax holiday for all new, Ugandan-owned startup businesses. The groundbreaking initiative, a centrepiece of the 2025-26 national budget presented by Finance Minister Matia Kasaija on Thursday, aims to drastically reduce initial hurdles for fledgling enterprises.

The tax exemption will apply to startups officially established after July 1, 2025, specifically targeting companies wholly owned by Ugandan citizens. This policy shift is designed to foster innovation, stimulate job creation, and encourage businesses currently operating informally to transition into the formal economy.

“In addition to raising revenue, the measures will support the growth of businesses and the economy,” Minister Kasaija told Parliament while presenting the Ugx 72.4 trillion (approximately USD 19.4 billion) budget. He projected that new tax policy measures, including the holiday, would generate an additional Ugx 538.6 billion (approximately USD 144 million) in domestic revenue.

Beyond the income tax holiday, the government introduced several other reforms to bolster the business environment and ease financial burdens:

• Elimination of Capital Gains Tax: Individuals transferring assets to companies they own and control will no longer face capital gains tax, a measure intended to encourage the formalisation of corporate entities.
• Scrapping of Stamp Duty: Stamp duty on mortgages and agreements has been abolished, directly aiming to lower the cost of accessing credit for both individuals and businesses.
• Waiver of Penalties and Interest: Taxpayers with outstanding liabilities have an extended opportunity to clear their principal tax by June 30, 2026, with an accompanying waiver on penalties and interest. Kasaija stated this waiver is “intended to provide relief to businesses and individuals to enable them to settle outstanding tax liabilities and resume normal operations.”

On the compliance front, the government has revised penalties under the Electronic Fiscal Receipting and Invoicing System (EFRIS). The previous fixed fine of Ugx 6 million per invoice for non-compliance has been replaced with a more proportionate penalty equal to twice the tax owed. “The system promotes transparency and creates an even playing field,” Kasaija urged, advocating for widespread adoption of digital invoicing.

Other notable tax adjustments in the new budget include:

• Excise Duty on Cigarettes: Increased from Ugx 55,000 to Ugx 65,000 per 1,000 sticks for soft cap brands, with higher rates for products imported from outside the East African Community.
• Beer Excise Duty Adjustments: 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: A 1% import declaration fee will now apply to taxable goods under the East African Community Common External Tariff. A new export levy of $10 per metric ton has been imposed on wheat bran, cotton cake, and maize bran to promote domestic value addition.
• Textile Sector Reforms: Import duties on fabrics will decrease from $3 to $2 per kilogram, and on garments from $3.5 to $2.5 per kilogram or 35%, whichever is higher.

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

To finance the 2025-26 budget, the government plans to raise Ugx 33.94 trillion from tax revenue, Ugx 3.28 trillion from non-tax revenue, Ugx 11.38 trillion from domestic borrowing, and Ugx 13.41 trillion from external sources. The comprehensive package of tax reforms signals a strategic push by the Ugandan government to foster a more dynamic and formalised private sector, ultimately aiming for sustainable economic growth and job creation.