This paper investigates the apparent disconnect between Uganda’s sustained macroeconomic growth and its persistently low tax-to-GDP ratio—the “weak link” that constrains fiscal space and public investment. Using annual data from FY1991/92 to FY2022/23, we estimate a structural vector-error-correction model that combines national accounts, fiscal, and institutional indicators.

Main results:

Results show that while real GDP growth has averaged 6% per year, the tax effort—measured as the ratio of actual to predicted tax revenue given economic structure—has stagnated around 0.65. Decomposition exercises attribute roughly half of this shortfall to narrow tax bases (exemptions in agriculture and informal services) and half to administrative weaknesses (compliance gaps and weak enforcement).

Panel evidence:

Panel evidence from 13 peer low-income countries further indicates that Uganda’s tax effort lies 3–4 percentage points of GDP below the level consistent with its income and openness.

Counterfactual simulations:

Counterfactual simulations suggest that broadening the VAT base, rationalizing investment incentives, and digitizing business registration could raise the tax-to-GDP ratio by up to 5 percentage points within five years without materially dampening growth.

The findings underscore that accelerating growth alone is insufficient; complementary tax policy and administrative reforms are needed to convert rising incomes into reliable domestic revenues.