Beyond the Tax Bill: Measuring Tax Compliance Costs for Ugandan Firms

Low-income countries require increased tax revenue to support economic development. An important barrier to increasing tax collection is the growing complexity of the tax system, which many small and medium-sized enterprises (SMEs) struggle to navigate. Tax compliance is often time consuming, confusing, and requires frequent in-person interactions with tax officials. This all contributes to the time, money, and effort incurred by taxpayers in meeting their obligations, over and above their actual tax liabilities. While compliance costs directly increase the total effective tax burden faced by firms, that is not their only effect. High compliance costs are often part of the explanation for taxpayers failing to take up provisions that would benefit them, such as not claiming tax credits for input costs (Almunia et al. 2024; Brockmeyer et al. 2024). This can particularly affect smaller firms, which may even overpay taxes as a result (Tourek 2022). This paper documents the substantial tax compliance costs faced by Ugandan firms, using survey data from 1,972 taxpaying businesses matched with administrative tax records. It highlights the composition of compliance costs, the role of tax agents, and the limited impact of digital compliance tools. The results show that compliance costs often exceed tax liabilities and disproportionately affect smaller firms.

Summary of Working Paper 223.