The effect of trade openness on tax revenue mobilization in Uganda (1990 – 2020).

Abstract

This study sought to establish the effects of Trade openness on Tax revenue in Uganda International trade tax revenue represents an important share of a country’s total public revenue hence, one underlying reason for the adoption of restrictive trade policy measures by policymakers in developing countries is the fear of losing this revenue because of greater trade openness or the liberalization of trade regimes. Despite implementing trade openness reforms, Uganda is experiencing lower revenue performance the recent being a revenue collection of UGX 19.2 trillion for the financial year 2020/2021 as compared to the revenue target of UGX 21.6 trillion for financial year 2020/2021 as given to Uganda Revenue Authority by Ministry of Finance, Planning and Economic Development. A time series data co-integration technique that uses the Autoregressive Distributed Lag (ARDL) Model was employed using tax revenue collections data covering the period 1990-2020. The data was obtained from the Ministry of Finance Planning and Economic Development (MoFPED) and the World Bank’s World Development Indicators. The study involved the use of the unit root test of Augmented Dickey Fuller (ADF) and Philips Perron (PP). The co-integration analysis is indicated by the bounds test. The results revealed that Trade openness has a negative and significant effect on Tax revenue performance in Uganda. However, Gross Domestic Product, Inflation, Government Expenditure and Foreign direct investment have a positive influence on Tax revenue in the long run. The policy implication is that in order for the government to improve revenue productivity, it should implement policies that reduce Trade openness like increased import tariffs and tariff-funded subsidies to local producers