Climate Shocks and Tax Base: Firm-Level Evidence on Profitability and Corporate Income Tax Compliance in Uganda

This paper examines the impact of climate variability on firm performance and corporate income tax (CIT) compliance in Uganda, a climate-vulnerable, low-income economy. We construct a panel of over 404,000 firm-year observations from administrative tax records (2013/14-2022/23) matched with high-resolution satellite climate data. Using fixed-effects models, we isolate the impact of temperature and rainfall shocks on profitability, efficiency, and tax contributions. Our findings indicate that higher temperatures negatively affect firm outcomes across all measures, with the largest effect on asset efficiency, where a 1% temperature increase results in a 2% CIT decline and over 4% reduction in return on assets. Rainfall shocks have asymmetric effects, improving efficiency in some sectors but reducing tax compliance, creating fiscal trade-offs. Robustness checks confirm that firm size and age mediate exposure: medium and large firms contribute more to CIT yet record weaker efficiency ratios. These findings extend the literature by linking firm operations to fiscal outcomes, showing that climate shocks create both corporate and fiscal risks. The analysis recommends embedding climate risk in revenue forecasts, promoting sector-specific adaptation, expanding access to climate-smart technologies and finance, and aligning tax incentives with resilience goals. Proactive adaptation is essential to protect productivity, fiscal stability, and long-term growth under increasing climate variability JEL Classification: Q54, H25, D22, Q56, O55