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Uganda soft drink makers push for uniform excise duty in EAC

Monday May 08 2023
Coca Cola Uganda

Coca-Cola displayed at a store. Soft drink manufacturers in Uganda say high excise tax rate has caused price distortions and is fanning illicit trade and smuggling of sodas from Kenya. FILE PHOTO | AFP

By KABONA ESIARA

Ugandan soft drink manufacturers have joined in on calls to have excise duty harmonised across the East African Community (EAC).

Crown Beverages, Coca Cola Beverages Africa Uganda and Harris International chief executives say this will enhance the countries’ tax contribution without hurting businesses.

They are proposing the rate to be reduced by 20 per cent from the current $0.066 per litre to $0.053 per litre, ahead of discussions on the 2023/2024 Uganda budget.

In their proposal to the Parliamentary Finance, Planning and Economic Development Committee, they argue if the rate is reduced from Ush250 ($0.067) to Ush200 ($0.054) per litre, the excise duty collections will increase by four to eight per cent, thereby raising excise duty contribution from $54.2 million (Ush201.6 billion) to $56.4 (Ush209.4 billion).

They say the high excise tax rate has caused price distortions, is fanning illicit trade and smuggling of sodas from Kenya into Uganda.
The parliamentary committee was gathering views from the public on the proposed income tax reforms meant to plug tax leaks and expand the tax net. The executives were Paddy Muramiirah (Crown Beverages), Melkamu Abebe (Coca Cola Beverages Africa Uganda) and Simon Harvey (Harris International).

Read: Uganda frets over duty remission on sugar imports

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Broadening tax net

The manufacturers’ proposal comes at a time Kampala is broadening its tax net through a raft of bills. The CEOs insist that the high excise tax rate has caused price distortions, fanned illicit trade and smuggled of sodas from Kenya into Uganda’s eastern districts Busia, Busoga, and greater Elgon region.

It is not the first time the industry is pushing for the cuts. In 2017, President Museveni pledged to cut the excise rate to 10 per cent, but nothing has come of it.

Besides, the manufacturers also said the industry is facing constricted consumption, increased cost of operation (digital tax stamps) and inelastic product price, even as they invested in bottling lines and manufacturing plants to the tune of $277 million (Ush1.03 trillion) since 2017.

Kampala is also proposing to restrict the carrying forward of losses to five years. Thereafter, any losses carried forward will be limited to 50 per cent of the available assessed tax loss.

“If this proposal becomes law, it is likely to have a negative impact on infrastructure-intensive businesses that incur large start-up investment costs and end up in huge loss positions before they break even. Some of these businesses must carry forward losses for more than 10-15 years before they can break even,” says Juliet Najjinda, a senior manager in charge of indirect taxes at PwC Uganda.
Uganda further proposes to introduce a 15 per cent withholding tax on profits earned by members of collective investment schemes.

Read: Ugandan banks face slow revenue growth

Barriers to trade

Leaders in the region have previously admitted that tax variance and other restrictions and levies contributes to barriers to trade. This week, Kenyan President William Ruto said the EAC should break down the localised policies that are a result of “artificial boundaries that exist in our region.”

In 2017, President Museveni pledged to cut the excise rate to 10 per cent, but finance officials have not moved an inch to implement the directive, the manufacturers complained to lawmakers.

Besides, the manufacturers also said the industry is facing constricted consumption, increased cost of operation (digital tax stamps) and inelastic product price, even as they invested in bottling lines and manufacturing plants to the tune of $277m (Ush1.03 trillion) since 2017.

“We find it odd that minister of finance did not follow President Museveni’s directive to harmonise the rates and shall interface with the executive on this matter to avoid a reoccurrence of this in 2023/24 budget,” said Avur Jane Pacuto, the vice-chairperson of the finance, planning, and economic development committee of parliament.

Read: Storm over Kenya's duty-free cooking oil imports

Chances minimal

But chances of the executive cutting the excise duty remain hanging with the acting director of economic affairs at the finance ministry, Mr Moses Kaggwa, saying it is not part of the proposals his ministry sent to parliament to be included in the 2023/2024 national budget.
Kaggwa, however, hastened to add that if the manufacturers’ concerns are before parliament, they will catch the eye of the ministry.

According to Juliet Najjinda, a senior manager in charge of indirect taxes at PwC Uganda, Kampala will start collecting taxes from the areas previously not taxed.

For instance, gross revenue that non-resident digital service providers make in Uganda will be taxed at a rate of 5 per cent. The proposed rate is higher than what Kenya and Tanzania, levy on digital services. Kenya charges 1.5 per cent while Tanzania collects 2 percent.

Kampala is also proposing to restrict the carrying forward of losses to five years. Thereafter, any losses carried forward will be limited to 50 per cent of the available assessed tax loss.

“If this proposal becomes law, it is likely to have a negative impact on infrastructure-intensive businesses that incur large start-up investment costs and end up in huge loss positions before they break even. Some of these businesses must carry forward losses for more than 10-15 years before they can break even,” says Najjinda.

Uganda further proposes to introduce a 5 per cent and 15 per cent withholding tax (WHT) on profits earned by members of collective investment schemes (CIS).

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