Despite Uganda’s sustained macro-economic growth over the past three decades, the country’s tax effort—measured by the tax-to-
GDP ratio—has remained stubbornly low at approximately 13 %, well below both the Sub-Saharan African average of 17 % and its
own estimated revenue potential of 26 % of GDP. This paper investigates the paradox of Economic Growth and the Tax Effort in
Uganda: Explaining the Weak Link. Using a mixed-methods approach that combines fiscal incidence analysis, ARDL cointegration
modelling (1985–2023), and key-informant interviews with officials at the Uganda Revenue Authority and Ministry of Finance, we
find that the elasticity of tax revenue to growth is not only low but has turned slightly negative in recent years. We attribute this
weak link to four reinforcing constraints. First, structural factors: a large informal sector that accounts for 92 % of employment yet
yields less than 1 % of tax collections, extensive tax exemptions and discretionary incentives that erode the base, and a narrow
formal taxpayer register covering only 7 % of active enterprises. Second, institutional weaknesses: fragmented policy-making,
limited analytical capacity in the Tax Policy Department, and weak inter-agency coordination that undermines the implementation of
the Domestic Revenue Mobilisation Strategy. Third, governance deficits: low tax morale fuelled by perceived corruption and poor
service delivery, and uneven enforcement that disproportionately burdens compliant firms while politically connected entities enjoy
preferential treatment. Finally, macro-fiscal dynamics: an over-reliance on external borrowing and aid has relaxed the political
pressure to tax domestic incomes, while volatile commodity prices and an under-diversified export base have kept the effective tax
base narrow. Counterfactual simulations suggest that closing even one-third of the identified compliance gaps—through targeted
formalisation of the informal sector, rationalisation of exemptions, and improved governance—could raise the tax-to-GDP ratio
above 18 % within five years without dampening growth. The paper concludes that unless Uganda’s growth process is accompanied
by deliberate reforms to broaden the tax base, strengthen institutions and restore fiscal contract credibility, the country risks
entrenching a low-revenue equilibrium that constrains its ambitions for middle-income status by 2040.