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Smuggling eats into Uganda tax revenue

Saturday October 22 2016
ura

Uganda Revenue Authority (URA) is impounding goods worth over $57,000 every month. FILE PHOTO | NATION MEDIA GROUP

Uganda is losing tax revenue in a lucrative underground trade of smuggled goods, consisting mainly of cosmetics and motorcycles.

Sources at the Uganda Revenue Authority said that the value of goods impounded in Mpondwe, western Uganda at the border with the Democratic Republic of Congo stood at Ush200 million ($57,734) per month by the end of September.

Last year, the Uganda National Bureau of Standards banned the sale of cosmetics containing hydrotoxins and mercury due to the health risks they posed to consumers, but traders are secretly bringing them into the country.

The banned beauty products are popular because they cost below Ush5,000 ($1.4) per unit compared with an average price of Ush8,000 ($2.3) per unit for “safe” brands.

The URA also said that the number of motorcycles impounded at the Mpondwe border rose to an average of 100 units per month by close of September.

Motorcycles are charged a common external tariff of 25 per cent of assessed customs value while the average market price of a motorcycle is estimated at Ush3.7 million ($1,068). Imported motorcycle parts are subject to a 10 per cent duty rate.

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The amount of money recovered from motorcycles seized at the western Uganda-DRC border area is estimated at Ush120 million ($34,640) per month, URA officials said.

The lack of a strong government presence, porous borders and the presence of armed rebel groups operating in the eastern DRC is fuelling the trade in smuggled goods, experts said.

“Motorcycles should be treated as a factor of production instead of an ordinary transport tool. A farmer, trader, teacher and veterinary doctor all rely on them to supply goods and services,” said URA manager for customs operations in the western region, Asadu Kigozi Kisitu. “It would, therefore, be appropriate to either cut the import duty rate levied on motorcycles or transfer the duty to local fuel prices at a time when smuggling on fuel imports has dropped considerably.”

Excise duty levied on petrol was raised from Ush1,000 ($0.29) to Ush1,100 ($0.32) per litre in the current financial year.

Smuggling incidents pegged on fuel imports have dropped sharply since the rollout of the single customs territory window that requires importers of eligible goods to clear taxes before submitting customs declaration forms.

The proposal to cut import duty on motorcycles has attracted criticism from both business people and government technocrats.

According to Edward Kigongo, the chief executive of Ken Group, a stationery supplier, the government would do better if it cut taxes on three-wheeled motorcycles that are used widely to carry merchandise, and raise import taxes on two-wheeled motorcycles in order to minimise their numbers on the road.

A tax expert at Uganda’s Ministry of Finance, Planning and Economic Development Moses Ogwapus said that rather than favour importers, there is a need to pay more attention towards protecting investors in the motorcycle assembly sector where government focus across the region has shifted.

“The Council of Finance Ministers is also considering lowering taxes that will benefit companies that invest in production of motorcycle parts,” said Mr Ogwapus. “In the light of these circumstances, cutting the CET on imported motorcycles would inevitably destroy new investments in the motorcycle assembling industry.”

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