Business & Management
Study Reveals Taxation Issues in Uganda’s Informal Economy
A recent study by researchers at Makerere University’s College of Business and Management Sciences has identified the lack of a structured taxation framework for informal businesses as a significant cause of tax non-compliance among traders in Uganda. This revelation came from a collaborative research project involving eight university scholars, who examined the underlying factors contributing to the shadow economy and its implications for the national tax system.
The findings were presented by Dr. Ismail Kintu, the study’s Principal Investigator, at a dissemination workshop held in Nansana Municipality Council, Wakiso District, on Thursday. The research, initiated in 2022, aimed to assess traders’ perceptions of fairness within the taxation system and how this relates to voluntary tax compliance.
“Traders said the system is unfair to them,” Dr. Kintu explained during the workshop. “Our research aimed to understand what fairness means in Uganda’s context.” According to the study, fairness in the tax system is crucial for voluntary compliance, suggesting that taxes should be aligned with one’s revenue, and penalties should be applied equitably.
The researchers developed a proposed framework for taxing the informal economy, emphasizing the importance of consulting key stakeholders, such as district commercial officers, tax consultants, and leaders from traders’ associations, before implementing tax policies. The framework recommends engaging these stakeholders in meetings with the Uganda Revenue Authority (URA) and the Ministry of Finance to ensure that new tax policies are inclusive and fair.
The study also suggests the need for flexibility in tax collection, advocating for payment in installments and prior notification to traders before collecting taxes. This approach, the researchers argue, would help build trust and encourage compliance among informal traders.
The researchers’ proposed framework includes annual mapping of policy gaps in the informal economy and developing solutions to address them. This process would involve regular consultations with stakeholders to refine the tax system and maintain fairness.
Local officials who attended the workshop expressed support for the research findings. Mr. Festo Tandeka, Nansana Municipality town clerk, encouraged traders to cultivate a culture of paying taxes but cautioned against excessive taxation. He recommended allowing tax payments in installments to avoid overburdening traders.
Similarly, Mr. Shaffic Ali Nsubuga, Nansana Municipality Deputy Resident District Commissioner, urged tax officers to approach tax collection with compassion, suggesting that prior notices be given to traders before taxes are collected.
The findings of the Makerere University study arrive at a critical time, as Ugandan traders have recently protested against increasing taxes. Mr. Joshua Mawerere, a youth representative from the Kampala City Traders Association, welcomed the study, noting that it brings clarity to issues surrounding tax policies. He urged the government to raise awareness about new tax systems, like the Electronic Fiscal Receipting and Invoicing Solution (EFRIS), which some traders mistakenly perceive as additional taxes.
The study’s comprehensive approach to understanding the informal economy’s taxation challenges may pave the way for a more inclusive and equitable tax system in Uganda, fostering greater compliance and reducing the size of the shadow economy.
The research was funded by the government of Uganda through the Makerere University Research and Innovations Fund (Mak-RIF). Speaking at the stakeholders’ engagement on April 25th, Ms Evelyn Nyacho who represented the chair of the grants committee, congratulated Dr. Kintu and team upon the timely research finding. She said the findings would help URA and the traders coming after a traders’ strike over taxation. She said Mak-RIF was happy to sponsor research that is aimed at solving society issues like taxation. “I was happy to learn that taxes can be pay in installments. I hope traders can embrace this flexibility in paying taxes,” she said. She appreciated government for the research funding to the university. The government commits Shs30 billion annually to research at Makerere University in an effort to spur development of the country.
The research team
Dr Kintu (PI), Prof Eria Hisali (Co. PI), Dr Fred Bateganya, Dr Willy Kagarura, Mr Patrick Lumala, Mr Nicholas Musoke, Ms Marion Atukunda, and Ms Winfred Nalwoga.
Business & Management
Makerere University Hosts Seminar on Donor Aid Dynamics as Researchers Call for Rethink of Global Assistance
The College of Business and Management Sciences (CoBAMS) at Makerere University convened leading economists, policymakers, and students for a high-level seminar examining how global donors interact in shaping development assistance.
The seminar, organized by the Environment for Development Makerere Centre, featured Nathalie Ferrière, an Associate Professor of Economics at Sciences Po Aix, who presented research on whether international donors cooperate or compete—and what that means for countries such as Uganda.
Opening the session, CoBAMS Principal Prof. Edward Bbaale welcomed participants and underscored the significance of global academic collaboration. “I am very pleased to be here this morning for this seminar, and I take this opportunity, to welcome Professor Nathalie to Makerere University,” he said.
Prof. Bbaale highlighted the longstanding collaboration between Makerere researchers and Prof. Ferrière, noting that her current visit builds on joint work on foreign aid and public finance. “As Makerere University, we were particularly excited that, among all universities in Africa, you chose to collaborate with our researchers.”
He added that such engagements align with the university’s ambition to strengthen its research profile. “Makerere University has made a strategic decision to strengthen its position as a research university. We recognize that we must go beyond teaching and pursue significant breakthroughs in research.”
Donor behaviour under scrutiny
In her presentation, Prof’ Ferrière challenged conventional assumptions about development assistance, arguing that the growing number of donors has created coordination challenges. “If we look at the global landscape of development aid, we see a wide range of donors. The idea that only Western countries provide Official Development Assistance is incorrect,” she said.
Her research focuses on how donors respond to each other’s actions, using empirical evidence to test whether aid flows are driven by cooperation or competition. “Do they compete? Do they cooperate? Do they coordinate? That is the core of my research.”
Prof. Ferrière explained that while theory predicts both positive and negative interactions, real-world data reveals complex dynamics. Using the Mexico City Policy as a case study, she demonstrated how political shifts in the United States influence global aid patterns. “When the US reduces funding, other donors eventually also reduce their funding, rather than compensating,” she said.
This finding, she noted, challenges international commitments often made to fill funding gaps. “Initially, donors may maintain funding due to political or reputational pressures, but over time, they revert to their usual behavior and follow the dominant donor’s lead.”
Risks of dependency on major donors
Prof. Ferrière warned that reliance on dominant donors such as the United States can expose developing countries to funding shocks. “These findings suggest that reliance on a dominant donor can be risky. A more diversified donor base may increase stability and reduce vulnerability to political shifts.”
She also emphasized that donor competition is not necessarily driven by development outcomes. “Competition from donors is not for aid effectiveness. It is for commercial aspects and political influence, which are not necessarily related to domestic needs.”
At the same time, she cautioned that full cooperation among donors could weaken recipient countries’ negotiating power. “If you have a cartel of donors that totally agree, you have less bargaining power. So yes, it should be a mix.”
Academic debate deepens analysis
The presentation sparked a lively discussion among faculty, with Dr. John Bosco Oryema, a Lecturer and researcher in the Department of Economic Theory and Analysis at Makerere University’s School of Economics, praising the methodological rigor of the research.
“Your research is very exciting. I found the econometric methods particularly strong—especially your approach to identifying instruments and ensuring their validity.”
Dr. Oryema proposed alternative interpretations of donor behaviour, including herding effects and strategic competition. “This could be interpreted as a form of Stackelberg competition where the United States is the leader and other donors act as followers.”
He noted that such a framework highlights the role of game theory in understanding global aid systems. “This becomes a game-theoretic interaction, where donors adjust their behavior based on what the leading donor has done.”
Meanwhile, Dr. Paul Wabwiga, a Lecturer at the Makerere University School of Economics and Associate Research Fellow at the Policy Analysis and Development Research Institute (PADRI), raised broader policy questions, particularly from the perspective of recipient countries.
“In contexts like Uganda, where there is high intensity of Official Development Assistance, who actually benefits?” he asked.
Dr. Wabwiga questioned whether donor dynamics should concern developing countries or primarily the donors themselves. “From the perspective of a recipient country, increased aid inflows may seem beneficial. So, who should be worried about these dynamics?”
He also pointed to the political volatility embedded in US aid policies. “What is the net effect over time after alternating administrations? This could be a valuable extension of your research.”
Call for deeper, context-driven research
Responding to the discussants, Prof. Ferrière acknowledged the complexity of donor interactions and the need for balanced approaches. “From the perspective of donors, they would argue that cooperation is better, but competition could be beneficial if it improves effectiveness.”
However, she reiterated that real-world incentives often diverge from ideal outcomes. “Donor interests are not totally in line with effectiveness.”
She emphasized that understanding these interactions is essential for improving aid allocation. “We already know that allocation is driven by needs and donor interests, but we were missing the role of donor interaction.”
Prof. Ferrière also highlighted inefficiencies in current systems, particularly duplication of efforts. “In Uganda, ministries are already collecting detailed data. Why do donors spend money to do something that is already done locally?”
On the broader question of development outcomes, she stressed that aid alone cannot solve structural challenges. “Official Development Assistance is part of the solution, but not the whole solution, factors like institutions and governance also matter.”
Inspiring the next generation
Closing the seminar, Prof. Bbaale commended the quality of the research and its relevance to students and faculty. “You clearly invested significant effort in developing your instrumentation. That was very impressive.”
He encouraged students to view econometrics as a practical tool rather than a purely theoretical discipline. “We don’t want only to teach you econometrics and stop there. We want you to use it in real-world research.”
The Principal also reaffirmed Makerere’s openness to continued collaboration. “Whenever you are in Uganda, please consider this your academic home. We would be delighted to host you again.”
Business & Management
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Business & Management
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