The Minister of Finance, Matia Kasaija has temporarily blocked the Digital Tax Stamps (DTS) to be applied on manufactured goods in Uganda after beer and soft drinks manufacturers raised a red flag, saying it would increase their production costs to about Shs 100bn per annum.
“DTS brings additional production costs to the manufacturer for installing the stamping infrastructure, its maintenance and the individual stamps. These additional costs were not specified in the amended tax code of 2017,” reads part of the Uganda Alcoholic Industry Association’s petition to Kasaija.
For example a DTS will cost Shs 50 per bottle.
For a small company, this translates to Shs 1,200 per carton and Shs 960,000 for 800 cartons produced per day.
In a year, this will translate to Shs 299m. This figure does not include 10 percent excise duty per bottle and VAT.
The situation is scary for a large company like Uganda Breweries which produces about 330,000 million cartons of drinks per day.
It would have to pay Shs 39m per day hence Shs 12bn per year in digital tax stamps not to mention excise duty of Shs 1.2bn and VAT of Shs 2.2bn. Added to other financial costs, such a beer company would have to pay about Shs 154bn in taxes.
The manufacturers of beer and soft drinks say the DTS frontloads the cost of production with an additional cost to incorporate the DTS for products not yet sold.
Amid these concerns, ChimpReports understands Minister Kasaija today Thursday met with manufacturers, Uganda Revenue Authority officials and representatives of a Swiss company known as SICPA-SA which has been contracted to supply DTS.
The manufacturers insisted in their presentation that they cannot be made to pay for this solution yet all the benefits are for URA and SICPA-SA.
An official who attended the meeting said Kasaija agreed with manufacturers and asked SICPA representatives including Eric Corbier and Gianni Nigro to tell the meeting what manufacturers’ benefits were.
“The SICPA representatives couldn’t,” the official told us.
After an intense debate, manufacturers agreed with URA’s direction to write to Commissioner General of the tax body, Doris Akol, requesting for the SICPA-SA’s contract and procurement documents to be formally released to manufacturers for their appraisal.
It is alleged SICPA-SA will make more than Shs 200bn per year in digital tax stamps with all this money being repatriated back home in South Africa and Switzerland.
SICPA-SA’s representative to Kenya and Uganda, Christopher York recently told ChimpReports they would fulfill all their tax obligations but officials said this can only be confirmed if their contract with URA is made public.
Nevertheless, it was agreed during today’s meeting that all issues to do with cost of the digital tax stamps should be referred to the Minister of Finance as policy issues
Manufacturers also were in agreement that the cost of production should not increase and that URA will study the Dominican Republic and Ecuador where Government is meeting all the Costs of the DTS mechanism to chart a new path for the DTS in Uganda.
“Manufacturers are in agreement that URA will always consult with them and accommodate their interests,” an official added.
URA public relations official, Ian Rumanyika recently told ChimpReports the DTS would strengthen URA’s administrative capacity, add an element of digital government and ensure that all taxpayers are treated equally.
“One of the primary goals of the system is to close any existing gaps in excise tax collection, which means addressing both illicit trade as well as under-declaration. The system is intended to monitor and control the production and importation all excisable goods, not just beer, and is intended to give URA data to ensure / verify full and fair taxation of all products that are subject to excise taxation,” he said.
Rumanyika further said “illicit trade is a much larger problem for some product categories than for others (for example, more than 60 percent of spirits and more than 90 percent of opaque beer in the market is estimated to be illicit). However, regardless of the extent of illicit trade for each individual product category, URA needs to have an objective, verifiable source of data about production and importation volumes of all relevant products in order to ensure that every economic operator is paying their fair share of excise taxes.”
However, manufacturers of beer and soda say there isn’t any counterfeit beer and soda products on the market.
HOW IT IS DONE
This website understands the DTS project was already being implemented by URA, Uganda National Bureau of Standards and SICPA-SA.
The DTS mechanism is a combination of machines (applicator), the stamp (both digital and physical) and internet based software supplied by SICPA.
SICPA-SA is to supply, install, monitor and maintain equipment at their cost, and they will be paid for each Stamp applied.
DTS equipment will require online connectivity, factory line modifications and system alterations which manufacturers say is costly.
URA, with some support from President Museveni, say the system will help them increase in excise tax increase in excise tax revenue collection.
They claim the system has done wonders in countries like Morocco whose taxes grew by 20 percent; Kenya at 45 percent and Turkey at 34 percent.
But during today’s meeting, manufacturers said DTS requires strict controls and yet 53 percent of the country’s economy is informal Sector and 67 percent in Alcohol.
The manufacturers said the implementation of DTS contrasts with government’s declaration to lower manufacturers’ costs of doing business since they fully comply with guidelines on tax obligations.
They further expressed concern on the procurement of DTS services from a controversial supplier whose credibility has been questioned in Kenya and Tanzania.
Manufacturers said if the implementation is began with the formal sector, due to the price sensitive Ugandan economy, informality will indeed increase due to the increase in price of formal company products.
They also warned of possible increase in illicit and counterfeit products as evidenced in the tobacco sector in Kenya and Uganda hence loss of government revenue as consumers opt for cheaper alcoholic products which usually come with increased health risks.