Foreign aid and stimulating domestic revenue mobilisation in Uganda and Kenya


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 discussion paper looks at ODA intended to stimulate domestic revenue mobilisation in Kenya and Uganda for poverty reduction and development.

The role of official development assistance (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.

The paper later focuses on three main areas of evidence where ODA has stimulated domestic revenue mobilisation in Uganda and Kenya specifically through; system enhancement, support to increasing trade taxes and tax-related capacity building.

Key learnings

  • 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%.
  • Norway is the largest funder of ODA to domestic revenue mobilisation activities in Uganda while the US is the largest funder of ODA for Kenya’s domestic revenue mobilisation activities.
  • 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 revenue mobilisation (termed ‘wider projects’ in this paper) as opposed to projects whose main objectives are primarily to support domestic revenue mobilisation activities (‘core projects’).
  • Uganda’s ODA funding to core domestic revenue mobilisation activities was mainly channelled 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 and the Kenya Revenue Authority.
  • 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.

Read our discussion paper in full

Contact

Sophie K. Nampewo
E: Sophie.Nampewo@devinit.org

Photo © Mykhailo Svyrydovych