Determinants of tax revenue growth in Uganda

This study investigates the Determinants of Tax Revenue Growth in Uganda over the 1991-2002 period. Four hypotheses were tested using the Engel and Granger two-step algorithm from which a long run equilibrium relationship among the variables was established and a two stage least squares (2SLS} to tackle the causality relationship that exists between tax revenue and GDP over the period 1991-2002. The hypotheses are: First, tax revenue growth is positively related to tax rates. Second, tax revenue growth is positively related to level of economic activity measured by GDP. Third, tax revenue growth is negatively associated with higher costs of tax administration. Four, tax revenue growth is negatively related to an appreciation of the exchange rate. The results suggest that tax rate, GDP and real exchange rate are each positively related to tax revenue growth, while cost of administration is negatively related to tax revenue growth. Thus in general, the results demonstrate that influence of GDP on tax revenue growth suggests that emphasis should be placed on widening the tax base. By increasing her tax rates Uganda would have her revenues increased. Designing tax systems that would make tax payers more compliant is geared towards reduced costs of administration in Uganda.