State capacity – the ability of modern states to collect taxes efficiently, enforce contracts, and provide essential public goods and services –is the foundation of effective governance and national development. Governments with strong administrative and fiscal capacity can collect sufficient tax revenues to provide essential public services including healthcare, education, and infrastructure. However, in many African countries, governments struggle to collect sufficient tax revenues due to weak fiscal and institutional capacity, forcing them to rely on external borrowing and aid.
Weak fiscal and administrative capacity have been cited as the largest constraint to domestic resource mobilisation. It leads to tax evasion and inefficiencies in tax collection. These challenges contribute to persistently low tax-to-GDP ratios, limiting the ability to mobilize sufficient domestic resources for national development. Across the continent, tax revenue remains far below what is needed to meet basic social services need
The average tax-to-GDP ratio in Sub-Saharan Africa stands at 17.2 percent, below the Asia-Pacific average at 19.3%. This stagnation reflects deep structural weaknesses in tax administration, including poor enforcement mechanisms, weak compliance incentives, and a large informal sector that remains outside the tax net.
The inability to effectively register taxpayers, monitor income, and enforce tax compliance is compounded by gaps in data and underreporting, which lead to significant revenue leakages. A lack of capacity to assess and collect taxes across various sectors, especially the informal economy, has further restricted revenue generation.
Uganda is no exception. Despite several reforms, the country’s tax-to-GDP ratio has stagnated at around 13 percent over the past decade, significantly lower than the regional average at 17.2 precent This stagnation means that the government consistently collects far less revenue than needed to finance public services and infrastructure. With increasing expenditure demands, particularly in areas such as education, healthcare, and energy, Uganda’s reliance on borrowing has intensified, raising concerns about long-term fiscal sustainability.
Digital Public Infrastructure (DPI) presents a transformative opportunity to overcome these challenges. Through leveraging technology, Uganda can potentially enhance tax administration, improve compliance, and expand the tax base. This analysis explores Uganda’s current tax challenges and shows how DPIs tools like the Taxpayer Identification Number (TIN) system and the Electronic Fiscal Receipting and Invoicing System (EFRIS) can be leveraged to enhance state capacity and improve revenue mobilisation.
Over the past few years, the Uganda Revenue Authority (URA) has introduced several DPIs aimed at strengthening tax collection and enforcement. These include the TIN system, the EFRIS, Payment Registration Numbers (PRNs), Digital Tax Stamps (DTS) and Compliance Improvement Plan (CIP). These digital tools have significantly improved various aspects of tax administration, from registration and invoicing to payment processing and compliance monitoring. For instance, TINs have expanded the tax base by integrating national ID systems, registering over 350,000 informal taxpayers by 2022.
Additionally, EFRIS has enhanced VAT compliance by enabling real-time transaction tracking, leading to a 12 percent rise in VAT collections and curbing tax fraud. PRNs have streamlined payments by integrating mobile money and banking platforms, facilitating 25 percent of tax payments digitally. DTS has strengthened market regulation, reduced illicit trade and boosted excise duty and customs collections. Meanwhile, CIP, introduced in 2023, is improving enforcement through real-time audits and risk-based assessments, enhancing voluntary compliance. These innovations collectively mark a milestone in Uganda’s tax modernization journey.
While Uganda has made significant progress by integrating DPIs into its tax system, there is still room for expansion and innovation. The future of tax administration in Uganda lies in scaling up and optimising digital public infrastructure. The successes of EFRIS, PRNs, and DTS highlight the potential of DPI to transform tax collection, increase compliance, and boost revenue generation. By embracing technology-driven solutions, Uganda can overcome its long-standing tax revenue challenges and build a more efficient, transparent, and sustainable tax system. A fully digitised tax administration system will not only enhance revenue mobilization but also reduce reliance on external debt, ensuring long-term economic stability. With the right investments in digital innovation, Uganda can unlock its full revenue potential and achieve a more robust and self-sustaining economy.