This paper investigates the fiscal cost and developmental consequences of Uganda’s expanding tax-expenditure regime over the period FY2016/17–FY2022/23. Drawing on Uganda Revenue Authority administrative files, Ministry of Finance Tax-Expenditure Reports, and UNU-WIDER firm-level data, we estimate that revenue foregone through exemptions, rate reliefs, and special credits has risen from 0.87% to 1.62% of GDP—equivalent to 11.9%–12.5% of actual tax collections in recent years.

Decomposing these figures, we find that VAT exemptions account for the largest share (≈33%), followed by customs duty waivers (≈27%) and corporate income tax incentives (≈27%). Importantly, half of the firms currently enjoying tax holidays would remain highly profitable at the standard 30% corporate rate, implying that marginal deadweight losses may be as high as US$42 million annually—nearly one-fifth of total CIT revenue.

Effectiveness of incentives:

Using difference-in-differences and synthetic-control techniques, we show that while selected incentives are associated with modest increases in investment and employment among multinational corporations, these effects are concentrated in very large firms (1.9% of the registry) and exhibit diminishing marginal returns.

Fiscal cost and opportunity cost:

Meanwhile, the aggregate revenue loss—estimated at UGX 2.4 trillion between 2014 and 2018—undermines fiscal space for pro-poor spending, exceeding combined allocations to health, agriculture, water, and social development in FY2019/20.

Conclusion and recommendations:

We conclude that Uganda’s current tax-expenditure architecture is regressive, opaque, and poorly targeted. Reforms that sunset redundant incentives, introduce mandatory cost–benefit analysis, and ring-fence exemptions for verifiable market failures could raise domestic revenue by at least 1% of GDP without compromising growth. The paper provides a roadmap for integrating these measures into the 2025–2030 National Development Plan and offers lessons for other resource-constrained economies navigating the incentives-versus-revenue dilemma.