Foreign aid and stimulating domestic revenue mobilisation in Uganda and Kenya

TITLE: Foreign aid and stimulating domestic revenue mobilisation in Uganda and Kenya

AUTHOR: Development Initiatives

YEAR: 2016

ABSTRACT: The role of official development aid (ODA) in supporting developing countries to enhance and generate domestic revenues (specifically tax revenue) has been the centre of much debate in the development discourse. With the adoption of the Sustainable Development Goals (SDGs), great focus has been put on the need to map available domestic resources to finance developing countries' development agendas.

At a time when there is need for countries to assess and account for the effectiveness of aid to a recipient country's development, this report looks at ODA intended to stimulate domestic revenue mobilisation in Kenya and Uganda for poverty reduction and development. The report's key findings include:

  • Tax revenue makes up the biggest proportion of total revenue for Uganda and Kenya, and was over 80% in fiscal year 2013/14 for both countries, while grants and non-tax revenue made up less than 20%.
  • ODA to domestic revenue mobilisation in Uganda and Kenya is mainly towards projects that support domestic revenue mobilisation activities indirectly but whose main objectives are not domestic resource mobilisation as opposed to projects whose main objectives are primarily to support domestic revenue mobilisation activities.
  • Uganda's ODA funding to core domestic revenue mobilisation was mainly channeled to capacity building for oil revenue management.
  • Kenya's funding to core domestic revenue mobilisation activities was to the Tax Justice Network, Africa and institutional collaboration between the Swedish International Development Cooperation Agency (Sida) and the Kenya Revenue Authority (KRA).
  • Donor assistance to domestic revenue mobilisation has contributed to managing and administrating taxes in Uganda and Kenya through automating revenue collection systems, facilitating trade and building tax-related capacity.
  • There is potential for more core projects to support domestic revenue mobilisation, especially towards innovative ways of taxing the informal sector, to further boost revenues.