In a rare gesture of generosity — or perhaps a reluctant nod to the realities of starting a business — Uganda’s government has proposed a three-year income tax holiday for startups. The proposal, tucked into the Income Tax (Amendment) (№2) Bill, 2025, promises a reprieve for startups “established by a citizen” beginning operations after July 1, 2025.

“The objective of the Bill is to amend the Income Tax Act… to provide for the exemption of startup businesses… for a period of three years from tax,” Finance Minister Matia Kasaija noted in a March 25 supplement. For early-stage entrepreneurs who survive the startup trenches on optimism, borrowed capital, and questionable broadband, it’s a long-awaited acknowledgment that perhaps government taxation and innovation aren’t the most compatible companions during the first fragile years of a business.

But while the announcement has been welcomed with polite applause and hopeful anticipation, the details — unsurprisingly — raise as many questions as they answer.

For citizens like Jacob Eyeru, Chairperson of Uganda’s National Youth Council, the proposed exemption is cause for cautious celebration. “In 2022, we petitioned Parliament for among startups to get a minimum of 2 years tax holiday. In 2025, gov’t has finally granted this request from the thousands of youth entrepreneurs in Uganda. It’s in moments like this that it feels like it was all worth it,” Eyeru said. Eyeru, like many Ugandan entrepreneurs, sees the tax holiday as a lifeline — one that could finally let businesses keep some of their hard-earned capital for, well, actually running the business.

The exemption will apply to income tax, meaning startups can retain more of their earnings, potentially reinvest in operations, hire staff, or simply stay afloat a little longer. Sectors expected to benefit include technology, agriculture, manufacturing, and the many creative industries that tend to emerge in economies where formal employment is both limited and highly coveted.

Still, there is a fine print — albeit in invisible ink. The policy only applies to startups founded by Ugandan citizens, not foreign founders or joint ventures. And as ever, it’s unclear what exactly defines a “startup” in legal or operational terms. Must it be registered? Funded? Innovative? New? Silent nods to bureaucratic ambiguity are as Ugandan as matoke and parliamentary delays.

But the enthusiasm isn’t universal. For veteran Ugandan journalist Charles Onyango-Obbo, the exemption doesn’t go far enough. “Good move, but why stop at three years?” he argued. “Make it five — especially for startups outside Kampala.” His point underscores a lingering frustration: while the tax break is a start, it may still leave rural entrepreneurs at a disadvantage.

While startups may now have permission to breathe, they’re still expected to pay dearly for the oxygen mask. The current tax regime imposes levies on nearly every digital and electronic input — from cloud storage to fibre cables — undermining efforts to build a knowledge economy from scratch.

Uganda’s startup scene, despite its tax woes, has shown notable resilience. With 78% of its population under 35 and youth unemployment persistently high, necessity has become the mother of startups. According to AfriCo, a business intelligence platform, Uganda ranks 89th globally for startup ecosystems, with Kampala, Mbarara, Jinja, and Gulu leading the charge. Fintech remains the crown jewel, responsible for a significant share of the investment in ecosystem value. 

Entrepreneurship here is often less a lifestyle choice than a survival mechanism. The Global Entrepreneurship Monitor has previously named Uganda among the most entrepreneurial countries in the world — a statistic less reflective of vibrant innovation than of a vacuum of formal jobs.

That paradox is not lost on policymakers. A national startup policy is reportedly in the works, spearheaded by the Private Sector Foundation Uganda (PSFU) with support from the Mastercard Foundation. Coordinated by the Ministry of Commerce, Industry, and Cooperatives, the policy aims to create a framework that governs the complex relationship between government, startups, investors, and incubators. When — or if — it emerges, the policy could complement the tax exemptions with regulatory clarity and funding support. Or it might join the many noble documents gathering dust on ministry shelves.

The Bottom Line

Uganda’s three-year tax holiday for startups is a long-overdue nod to the hurdles entrepreneurs face in a challenging business environment. But like many policy initiatives, it risks being too little, too late — or too isolated to make a lasting difference.

The move, while not revolutionary, is at least an admission that growth cannot be taxed into existence. For many founders, the relief from income tax is a secondary concern — after all, you need to make income before you can be taxed on it. As such, the exemption risks becoming a symbolic gesture unless it’s paired with deeper structural reforms to lower the cost of doing business and improve access to the tools and services startups actually need to survive. Whether the policy becomes a real catalyst for innovation or another footnote in the country’s patchwork approach to enterprise remains a question for the next three years.

And with any luck, by then, some of those startups might just be profitable enough to actually pay taxes.