Impact of Tax Reforms on Household Welfare

The Uganda government has since 1987 initiated a sequence of tax reforms to address the fiscal challenges facing the country. This paper uses a Computable General Equilibrium (CGE) model to analyze the welfare effects of tax reforms on households and the impact of these challenges on production and firm activities. The findings are consistent with previous studies which found that the introduction of VAT was indeed a progressive policy reform. Zero rating all food items and agricultural products mainly benefit the low income households whose consumption basket is mainly food items. In a quest for further sources of revenue by overtaxing the rich, this could generate further revenues albeit lower savings and investments by this group. Finally, over-reliance on excise duties especially on petroleum and alcohol drinks affects the transportation sectors which are also used by the poor. In our results we find that taxation of petrol and rising excise duties indeed is a regressive policy stance