# 7. Conclusions

To make progress in promoting equality and improving the living standards of the population in Uganda, it is necessary to understand the effect of Uganda’s fiscal policy on inequality and poverty. This report uses the internationally comparable CEQ methodology to assess the individual and combined effects of taxes and public social spending, based on the microdata from the UNHS 2016/17 household survey. The main objective is to provide considerations for policy makers in terms of which fiscal instruments or, more specifically, which mix of fiscal instruments can contribute to reduce poverty and inequality.

Overall, our results show that Uganda’s fiscal system is modestly equalizing. As a whole, taxes and transfers in 2016/17 reduced inequality by approximately 3.23 Gini points. This result is comparable to Ghana, moderately lower than in Kenya and Tanzania, and much lower than the result observed for South Africa. The largest contributive factor to this equalizing effect is direct taxation (personal income tax or PAYE), followed by the education in-kind transfers (net transfers). This is not surprising, given the size of these fiscal interventions as a proportion of pre-fiscal income and their progressiveness.

Direct transfers and social protection programs more generally contribute to the redistributive effect and are simulated as highly concentrated among the poorest households. Nonetheless, their effect is rather modest due to the low coverage, scope and size of these programs. In this sense, expanding the coverage of social protections programs – in the case of NUSAF beyond the northern region, and in general, increasing the number of beneficiaries – should not only help to reduce household vulnerability but also lower inequality.

Importantly, some fiscal transfers in Uganda appear to be regressive and contribute to increased inequality. In particular, tertiary education transfers and, to a lesser extent, water subsidies and technical education transfers are disproportionately benefitting better off households. Households with access to the public water supply – usually non-poor and primarily urban households – capture current water subsidy benefits. This may suggest that non-poor users would agree to a higher tariff that would eliminate or partially eliminate the need for subsidies to water. The foregone expenditure could be used to expand current cash transfer programs (for example). Similarly, a closer assessment of who is benefiting from tertiary and technical education may suggest alternative ways for funding these services, perhaps with the participation of the private sector.

The in-kind education transfers, particularly at the primary level, benefit the less wealthy households. This is the outcome of the Universal Primary Education initiative launched by the GoU almost two decades ago, which has increased enrollment rates. However, increased enrollment over the years has taken its toll; Uganda struggles to provide high-quality education everywhere. This leads to, among other things, a low completion rate for the primary level and, related to this, the low transition rate into secondary level. Fiscal policy would need to address these shortcomings before expecting a large impact of, for example, increased secondary education spending.

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