Impact of taxation on Uganda’s economy (1985-2019)

Abstract

Many developing countries including Uganda strive to achieve economic growth and development though they face numerous economic challenges. The effectiveness of taxes as a tool for promoting economic growth and development remains unconvincing, as several studies have indicated mixed impacts of taxation on economic growth in different countries. It is therefore against this background that the study investigated the impact of taxation on Uganda’s economy from 1985 to 2019. The study carried out various preliminary tests including descriptive statistics, pairwise correlations and unit root tests using Augmented Dickey Fuller (ADF) test and Phillips perron. The autoregressive distributive lag (ARDL) model augmented by the bounds test were used for estimation. The results reveal that in the long run tax revenue, government expenditure and foreign direct investment affect economic growth while in the short run only government expenditure affects economic growth. In order to increase economic growth, government should ensure increase in government revenue through policies such as; reducing tax exemptions for investors, proper implementation of value added tax, expanding the tax base, improving enforcement and increasing tax rates for some commodities.