This paper evaluates the distributional consequences of Uganda’s recent consumption-tax reform that simultaneously raised VAT and selected excise rates while curbing exemptions. Combining household expenditure data (UNHS 2019/20) with the UGAMOD microsimulation model, we trace the first-round effects across the entire income spectrum and for sub-groups defined by gender of the household head, rural–urban location, and sector of employment.

Progressivity findings:

Results indicate that the reform is mildly progressive in absolute terms but regressive relative to ability to pay. Households in the top consumption decile lose 8.5% of their post-fiscal expenditure, while the poorest decile loses only 1.4%; yet excise duties on kerosene and mobile-phone airtime—items with high budget shares among low-income households—raise their effective tax rate above that of the second-richest decile.

Revenue and welfare effects:

Simulations show that the reform lifts the VAT-to-GDP ratio by 0.9 points and excise revenue by 0.4 points, but increases the national poverty headcount by 0.7 percentage points and the Gini coefficient of consumable income by 0.3 points. Female-headed households and rural grid-connected households experience the largest poverty increases (1.1 and 1.0 points, respectively), driven mainly by higher energy and communication taxes.

Revenue-recycling scenario:

A revenue-recycling scenario that devotes 30% of the additional yield to a targeted household energy credit offsets half of the poverty increase and renders the overall reform distributionally neutral.

Conclusion:

The paper concludes that the efficiency gains of the consumption-tax reform can be preserved without exacerbating inequality if complementary measures are introduced to shield vulnerable groups.