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How to Improve Tax Collection in Uganda

The country’s low tax compliance contributes to a national tax-to-GDP ratio of 14%, well below the 18% average of the sub-Saharan African countries. Although tax evasion happens in many spheres – and many types of people do it – close examination of tax returns filed to the Uganda Revenue Authority by self-employed individuals suggests rampant evasion. Those who own small businesses or are self-employed file taxes on their own behalf. For this group, the tension of whether to comply or not is particularly salient. A recently conducted a study in Uganda tested the impact of tax payment reminders sent to respondents who were potentially liable to pay Uganda’s individual taxes. The reminders were sent to individuals in the form of text messages. Some messages focused on the rewards for payment, others on punishment for evading taxes. The biggest finding of this experiment is that text messages can work. Receiving any text message increased the likelihood that an individual would pay their tax. The punishment-themed messages worked best, and the strongest response seemed to come from parts of the country which had recently seen the benefits of increased government revenue. The messages were also cost-effective: on average, they returned a sixfold benefit (on the cost) to the Uganda Revenue Authority.