Implementation of International Tax Standards in Lower- and Middle-Income Countries: The Experience of Uganda

<p dir="ltr">Even though lower- and middle-income countries (LMICs) are most affected by the challenges associated with the taxation of cross-border transactions and the digital economy, their representation and participation in global tax reform efforts have so far been very minimal. LMICs are often expected to implement the international tax rules and standards that are developed by rich nations. </p><p dir="ltr">Using the example of Uganda, this study seeks to assess the suitability of international tax rules and standards, and whether they are able to address the needs and challenges of LMICs – especially those that arise in the taxation of cross-border transactions and the digital economy. The study is part of a comparative research project implemented by the International Centre for Tax Development (ICTD) – ‘Comparative Perspectives on International Tax from the Global South’. The assessment is undertaken through the lens of three major indicators – the integrity of the tax treaty environment, strengths of available exchange of information mechanisms, and effectiveness of the digital services tax.</p><p dir="ltr">Overall, the study findings show that Uganda has adopted, and in some cases implemented, international taxation standards relating to tax transparency, such as the Exchange of Information on Request (EOIR). Uganda has also ratified the Organisation for Economic Co-operation and Development (OECD) and Council of Europe Convention on Mutual Administrative Assistance in Tax Matters (MAAC). More recently it has adopted legislation for implementation of the Automatic Exchange of Information (AEOI). Although not a member of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (Inclusive Framework), Uganda has been inspired by the evolving global tax standards to initiate reforms, and in some instances to renegotiate existing bilateral tax treaties (BTTs), with the objective of limiting tax avoidance and tax evasion. The decision to adopt specific international tax standards is mainly motivated by the broader strategy to boost revenue mobilisation – a step needed to ease current budgetary deficits and control the growing public debt amidst dwindling aid from donors. It is for this same reason that Uganda introduced a digital services tax in 2023. This unilateral action shows that the country is ready and willing to depart from international tax rules and standards if they do not align with its revenue mobilisation goals.</p>