Finance Minister Matia Kasaija has called for more consultations before Uganda Revenue Authority (URA) rolls out the Digital Tax Stamps project amid cries from manufacturers that such a move would increase the cost of production and also shrink tax revenues.
A Swiss company known as Societe Industrielle et Commerciale de Produits Alimentaries (SICPA) in early October won a huge contract from URA to implement digital tax stamps starting with manufacturers of soft drinks and beer.
The new stamps solution is part of URA’s scheme to combat illicit trade, seal revenue leakages and boost collection and increased efficiency in managing taxpayer compliance.
The project also is expected to enable manufacturers, distributors, retailers and consumers to conveniently verify and trace all specified goods throughout the distribution chain.
However, manufacturers say the application of Digital Tax Stamps, at the cost of local manufacturers rather than URA itself, is tantamount to double taxation since they pay Excise Duty, Income and Corporation Tax, and Pay As You Earn (PAYE) Tax, among other levies.
“We envision, based on estimates, increased costs of at least US$10million a year across the industry, from Digital Tax Stamps alone,” the manufacturers said in a letter to President Museveni recently.
“The application of Digital Tax Stamps to locally manufactured products will increase the retail costs of these products, making them significantly more expensive on the open market, and therefore less competitive,” the manufacturers observed.
“As we all know, as representatives of the legitimate, compliant tax payers in the soft drinks sector we would be the only manufacturers in this sector to bear the cost. That would leave the already non-compliant manufacturers to place products on the retail market at a much lower cost than we are capable of.”
During a meeting with manufacturers on Tuesday morning, Kasaija said in Cabinet they were told it was a simple computer solution that would record all imports and products.
He said he was surprised to hear about the many complications and that some stamps were ink prints which are available on bottles.
“I agree with you. We need to invite the people who will be implementing this project to tell us how it will be done,” said Kasaija.
He also formed a committee comprising manufacturers, URA and technical people to brainstorm on the contentious issues ahead of the next meeting on December 12.
During today’s meeting, Uganda Manufacturers Association boss Barbara Mulwana told Kasaija that the digital tax stamps “will hurt us and inadvertently affect government” because with increased costs of production and prices of goods, the tax revenues would shrink.
“It’s adding costs to us. Our people will not be able to buy. And this will affect the taxes. We want to know why? Why now?” wondered Ms Mulwana.
For example, Uganda Breweries Limited produces about 35,000 cases of beer on a daily basis. Each case/crate carries 24 bottles hence 840,000 beer bottles per day.
ChimpReports understands URA told manufacturers the cost of stamps would “not be more than Shs50 per bottle” of non-alcoholic beverages, and will most likely be more for alcoholic beverages.
Let’s take the example of Shs 50 being tax stamp applied on each bottle of beer.
Using the example of UBL, the company would fork out a staggering Shs 42m for stamps applied on its 840,000 bottles of beer produced on a daily. This translates to Shs 1.2bn per month and Shs 15bn annually.
Nile Breweries Limited which produces more beer will pay more to URA. It’s estimated both UBL and NBL will be spending more than Shs 50bn annually as a result of the digital stamp requirements for beers and soft drinks.
“We estimate that if it is implemented the way it is now we could easily be sending US$80m annually to Switzerland (all the money goes to SICPA) every year,” said an industry player.
“That’s from water, juice, soda, beers, wines and spirits.”
The chairperson of Uganda Soda Manufacturers Association, Simon Kaheru said “stamps are targeting companies that are already paying taxes and who URA knows yet the problem is companies that dodge taxes and put fake products on the market.”
“But there are no fake beers or sodas in Uganda,” said Kaheru.
However, government says the stamps will help in cracking down on under declarations on the part of manufacturers which cost the taxpayer billions of shillings.
But most importantly, ChimpReports has discovered that SICPA, which is keen on seeing beer companies prepare for the digital tax stamps, is yet to open an office in Uganda for their operations.
On his part, York said SICPA “signed its contract with URA in early October and we are recruiting staff with a view to having an office set up” in Kampala as soon as possible.
The manufacturers alleged URA would collect and hand over all the revenues from digital tax stamps to SICPA hence exacerbating foreign exchange drainage.
Contacted on Wednesday evening, York, who is the project manager of the digital tax stamps, said SICPA would receive a portion of money collected from stamps by URA.
“In fact the stamp fees will be collected by URA and not SICPA,” said York in a message.
“However, we will of course be paying all the required taxes on our business activities in Uganda; corporate income tax, VAT, import duties on imported equipment and goods etc.”
Nevertheless, the manufacturers contend the Digital Tax Stamps project will require them to pay upfront for stamps, therefore locking down capital that could be utilised to run our operations by way of paying costs such as utilities (Umeme, Water and Internet), and making further investments in manufacturing.
Considering the government objective of lowering the cost of doing business in Uganda in order to make manufacturing and investment in Uganda more attractive, the manufacturers observed, “the imposition of Digital Tax Stamps on locally manufactured soft drinks is ironically counter-productive. We urge the government to reconsider this position urgently in order to encourage manufacturing and investment.”