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Uganda Moves To Tax Unprocessed Tobacco Exports

Uganda through the Ministry of Finance, Planning and Economic Development has proposed to Parliament to approve tax on export of unprocessed tobacco.

The move is aimed at ensuring value addition of tobacco produced from Uganda.

If approved, the tax will generate Shs35Bn in revenue.

The proposal was tabled before the Finance Committee by the Minister of Finance, Matia Kasaija Tuesday where he had appeared to present the2020/2021 national budget tax proposals.

Kasaija proposed an amendment to the Tobacco Control Act 2015, by imposing a levy on unprocessed tobacco leaf of USD0.8 per kilogram which is consigned out of Uganda.

The Minister told the Committee that the levy shall be paid by the consigned to URA at the time the unprocessed and processed tobacco leaf is consigned out of Uganda.

Minister Kasaija defended the proposal saying, “This is meant to promote value addition in Uganda by deterring exports of unprocessed tobacco which will generate Shs35Bn.

As such, Government also moved to appeal the provision in the Finance Act 2014 which imposed a levy on unprocessed tobacco leaf.

The proposal attracted mixed reactions from MPs, with the Committee tasking the Minister to provide evidence on implications of slapping this form of tax.

Moses Kaggwa, Acting Director Economic Affairs at the Ministry of Finance told Parliament that British American Tobacco (BAT) petitioned the EAC Court of Justice challenging the tax discrimination of cigarettes and the Court ruled that Uganda was going against the law and now the levy is the same for both local and foreign companies. 

Kasaija told MPs that with Uganda being signatory to EAC protocol, it became a common market and  can’t discriminate on tax.

 “We are facing a dilemma. We belong to EAC; there are some rules we have to follow. Some are breaking them with impunity and for us, we are trying to be faithful. Uganda had become a garden to BAT. We said no. 

I have told the AG to appeal and he says there is no ground because we are members of EAC. What do I have to do? The local manufacturer is saying that then I have to go to Tanzania,” Kasaija said.

However, James Kakooza (Kabula County) informed the Minister that EAC Heads of States have never reached a comprehensive agreement on this provision and the decision remains personal to each partner states and urged the Minister to inform President Yoweri Museveni to urge fellow heads of states in EAC to pronounce themselves on Excise duty.

“That is a fact, what we should do is either we say that the local manufacturer here can close and he doesn’t buy. Otherwise, we have to protect him because he is employing our people. BAT closed shop in Uganda, ran away to Nairobi and he went with our tobacco. We are becoming a super market,” Kakooza said.

Kaggwa concurred with Kakooza that Excise duty matter is still at hand among partner states, saying:  “However when you impose a duty, it must apply in uniformity to all products within the region. For example,  Ugandan milk doesn’t suffer VAT yet milk from Kenya incurs VAT in Uganda. This has caused a trade war within the EAC Milk.”

Nandala Mafabi (Budadiri West) asked, “Why don’t we block their cigarettes? Because they have blocked our milk and they are saying, pay. So we are also telling them to pay for cigarettes. They cannot enjoy a leveled around.”

Amos Lugoloobi (Ntengeru North) said that Uganda must have a strategic interest for manufacturers operating here and in order to circumvent this provision, there is need by Government to go by the tax measure and introduce a subsidy to protect the local manufacturer because he employs out peole.

However, Mafabi argued, “Multinationals will kill small companies. This is a local company and cannot compete freely in such a tax regime. Kenya has cigarettes, we also have cigarettes. I think the best way to do this is to speak out clearly that we have tobacco and you also have tobacco, so buy your own tobacco. The moment you say that you allow this tax, that company is going to collapse. BAT assets stand at 1.7T USD on global stand. Uganda risks having its market lost to BAT.”

With most of the Committee members moving towards approving Government proposal, Lugoloobi warned them that the decision from Uganda would attract retaliation from Kenya.

He said: “If we take the measure as members propose is that Kenya will retaliate. We cannot assume that we are going to raise more revenue, so we cannot anticipate a good out turn.”

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