Taxpayer response to greater progressivity: Evidence from personal income tax reform in Uganda

Maria Jouste (), Tina Kaidu Barugahara, Joseph Okello Ayo, Jukka Pirttilä and Pia Rattenhuber
Additional contact information
Maria Jouste: UNU-WIDER, Helsinki, Finland
Tina Kaidu Barugahara: Uganda Revenue Authority, Kampala, Uganda
Joseph Okello Ayo: University of Helsinki, Finland
Pia Rattenhuber: UNU-WIDER, Helsinki, Finland

No 13, Working Papers from Finnish Centre of Excellence in Tax Systems Research

Abstract: We evaluate a major personal income tax reform in Uganda that came into effect in 2012–13, contributing to the scarce literature on the effects of personal income tax reform on employees’ income in a low-income country in Africa. The reform increased the tax-free lower threshold, increased tax rates for higher incomes, and introduced an additional highest tax band for top 1% of income earners. Using the universe of pay-as-you-earn (PAYE) administrative data from the Uganda Tax Authority, we analyse the impact of the reform on reported labour incomes. In the preferred specification, we find very limited support for behavioural reactions. However, heterogeneity analysis reveals that top-income workers in firms handled by ordinary (as opposed to medium or large taxpayer) offices report lower incomes after the reform. We also find suggestive evidence that part of the response may arise from income shifting. The reform managed to raise more revenue and it also led to a limited reduction in after-tax income inequality.

Keywords: personal income tax; Uganda; administrative data; tax reform (search for similar items in EconPapers)
JEL-codes: C31 H24 O23 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2023-06
New Economics Papers: this item is included in nep-afr, nep-pbe and nep-pub
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Published in FIT Working Paper Series, Finnish Center of Excellence in Tax Systems Research

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Working Paper: Taxpayer response to greater progressivity: Evidence from personal income tax reform in Uganda (2023)
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