Uganda’s tax trap: Why illicit flows threaten the next era of growth

Recent estimates by the Southern and Eastern Africa Trade Information and Negotiations Institute (SEATINI) suggest Africa has lost about $88.6 trillion through illicit financial flows

COMMENT | JULIUS BUSINGE | As Uganda prepares for its 2026 elections, the country faces a challenge that extends beyond ballots and campaign slogans: its ability to finance development in a global tax system stacked against it. Domestic revenue mobilisation is often portrayed as a matter of better tax administration or anti-corruption measures. That diagnosis is convenient and incomplete. A far more consequential problem lies beyond national borders, embedded in an international tax architecture that allows wealth created in Uganda and across Africa to be extracted legally and quietly.

Recent estimates by the Southern and Eastern Africa Trade Information and Negotiations Institute (SEATINI) suggest Africa has lost about $88.6 trillion through illicit financial flows. Even if the exact figure is debated, the direction is clear: vast sums continue to leave the continent through structural channels that rarely provoke outrage. This is not primarily about criminality; it is about design.

The OECD highlights that base erosion and profit shifting by multinational companies costs governments $100 billion to $240 billion annually, much of it through lawful means. Yet legality is not legitimacy. When global firms minimise tax obligations through structures unavailable to domestic companies, the credibility of tax systems and the willingness of ordinary citizens to comply erodes.

Uganda’s experience with double taxation agreements illustrates the problem starkly. Designed to prevent double taxation and attract investment, many treaties have become conduits for profit shifting. Most were negotiated in the 1990s, when Uganda had limited bargaining power. Several follow the OECD model, which privileges residence-based taxation. For a capital-importing economy, that bias is costly. Profits generated from Ugandan labour, consumers, and natural resources are often taxed where companies are headquartered, not where value is created.

SEATINI estimates that treaty shopping and aggressive tax planning linked to some of Uganda’s agreements may be costing the country tens of billions of shillings each year. These losses quietly erode fiscal space, constraining the state’s ability to fund infrastructure, health, education, and other public goods critical for long-term growth, precisely the investments that make economies more productive and societies more resilient.

This pattern is not unique to Uganda. Across Africa, rising foreign direct investment has failed to translate into proportionate tax revenue. Without robust source-based taxation, profits can be shifted offshore via interest payments, management fees, royalties, and capital gains realised elsewhere. In Uganda, legal disputes in the oil and telecommunications sectors illustrate the stakes. Courts have ruled that foreign firms lacked a permanent establishment under existing treaties, leaving the Uganda Revenue Authority unable to tax substantial local profits. Offshore structures have further complicated enforcement, forcing reliance on domestic anti-avoidance provisions rather than clear treaty-based rights.

These weaknesses will intensify as the economy digitises. Multinational companies increasingly generate significant revenue from Ugandan consumers without a physical presence. Yet many treaties still rely on outdated concepts such as permanent establishment. Without reform, substantial value will escape taxation entirely.

International reform efforts, including the OECD’s BEPS initiative and UN-led work on digital taxation, acknowledge these gaps. But progress is slow and uneven. Outcomes continue to reflect the interests of advanced economies, while source countries wait for reforms that may arrive too late, if at all.

Uganda therefore faces a strategic choice. Inaction will continue to drain revenue quietly, undermining the state’s ability to invest in its citizens. Reform offers a path forward: renegotiating or terminating outdated treaties, prioritising source-based taxation, and aligning with the UN model convention, which better reflects the realities of developing economies. This approach is not anti-investment. Investors value clarity, stability, and fairness more than artificially low tax bills.

Institutional capacity is critical. Uganda must strengthen the technical skills of treaty negotiators, improve transparency, and involve parliament and civil society. Treaties shape national development outcomes for decades and should not be negotiated as purely technical instruments behind closed doors.

Regional coordination is equally urgent. The East African Community’s long-delayed double taxation agreement could provide a more balanced framework for taxing cross-border income. Its continued non-ratification reflects a missed opportunity. Collective negotiation would strengthen bargaining power and reduce the race-to-the-bottom dynamics inherent in individual negotiations.

Illicit financial flows are not an inevitable cost of globalisation. They are the product of outdated rules, asymmetries of power, and policy choices that can be changed. For Uganda, reclaiming taxing rights is no longer a narrow technical debate. It is a core development question, one that will determine whether economic growth translates into shared prosperity or continues to leak away through the fine print of global tax rules.

As Uganda heads into a pivotal election year, the stakes are clear. Political leaders may debate succession and policy priorities, but fiscal sovereignty, the ability to capture the revenue that domestic activity generates, will shape the country’s next era far more profoundly than any ballot. Without decisive reform, Uganda risks entering its future financially weaker than its ambitions require.

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Julius Businge is a business journalist.