A multivariate analysis of the determinants of tax revenue in Uganda

Abstract

Fiscal deficit is the core issue of most developing countries over the past several decades. The cause behind the large increase in fiscal imbalance is the quick expansion in expenditure and low revenue collection. Therefore, an efficient tax system is important for these countries. Uganda is among the developing countries and the pattern of tax revenues and economic growth across the country has become a serious concern.

The research was carried out to assess the determinants of tax revenue performance in Uganda. A statistical analysis was carried out among four determinants that is Foreign Direct Investment, Inflation rate, Gross Domestic Product and Trade Openness. A period of 11 years from 2009 to 2020 and the data from these variables was recorded and used for analysis.

Data about tax revenue performance was collected from Uganda Revenue Authority, gross domestic product, foreign direct investment and trade openness data was collected from Uganda Bureau of Statistics and data on the inflation rate was collected from the Bank of Uganda. Data was cleaned using Microsoft excel and analyzed using Stata. Descriptive statistics and econometric tools were used to analyze and present the data.

The study revealed that gross domestic product and foreign direct investment have a significant positive effect on the tax revenue performance in the country meaning that an increase in these variables leads to an increase in the revenue performance while the annual rate of inflation was found to have a negative relationship with the tax revenue performance meaning that an increase in the rate of inflation would lead to a decrease in the revenue performance.