Manufacturers Decry High Cost on Digital Tax Stamp as PSFU Unveils Latest Study Findings

The Private Sector Foundation Uganda (PSFU) has released a report indicating that the high cost of Digital Tax Stamps has continued to take a toll on manufacturers.

According to the survey carried out by PWC, there has been an increase in operational expenses incurred by manufacturers equivalent to an average of 16% of their Local Excise Duty obligations which has affected the growth and expansion of businesses. 

In addition, 56% of the manufacturers registered an increase in the cost of production and 50% of them reported diminished profitability.

“These upfront investments have posed significant financial challenges for manufacturers, particularly Small and Medium Enterprises (SMEs) with limited capital resources,” reads part of the report.

Speaking at the launch, Sarah Kagingo, Vice Chairperson PSFU Board, Sarah Kagingo, the PSFU Board Vice Chairperson, called for collective efforts to gain comprehensive insights into DTS’s impact on the manufacturing sector. 

She emphasized the need for enhanced collaboration between the private and public sectors for evidence-based policy formulation.

Kagingo also stressed the necessity to reduce costs associated with DTS implementation, noting recent studies aimed at understanding cost drivers in the manufacturing sector. She expressed hope that the government would utilize these findings to inform policy.

Meanwhile, Stephen Asiimwe, Executive Director PSFU, said most of the costs incurred are absorbed by the manufacturers and not passed on to the final consumers, for fear of the impact on consumer demand.

This, he said has led to business closure in some businesses such as alcoholic beverages manufacturers. 

Companies that have ceased operations due to high DTS costs according to Uganda Alcohol Industry Association (UAIA) include Global Distillers Limited, Four-Star Beverages Limited, Parambot Distillers Limited, Gama Distillers, Kasese Distillers and London Distillers Limited among others.

DTS costs vary across different products, for instance, DTS for wines and spirits are UGX 110 while UGX 13 and UGX 17 are charged on bottled mineral water and any other non-alcoholic drinks respectively.  

“Uganda’s stamp prices, on average, are more expensive than those in the East African region by 38% yet all three countries share the same supplier, SICPA. Uganda also has more products gazetted for excise duty when compared to its neighboring countries; several businesses have closed impacting some manufacturers’ capacity to create more jobs, invest in additional infrastructure, and increase their production capacity,” said Asiimwe.

The Uganda Breweries Limited Managing Director Andrew Kilonzo called for a review of the implementation framework of DTS to achieve the best system at the least cost possible.

“For UBL particularly, the cost of installation has been significant as both a machine and manpower are used to print and affix the digital tax stamps on the different range of product. The government must ensure that the implementation of Digital Tax Stamps does not disproportionately burden small-scale producers or consumers,” he said.

Adding, “We are spending an average of Shs20b annually on stamps alone and another UGX 84m on incidentals.”

In Uganda, the use of DTS was rolled out in the Financial Year 2019/20 following the launch of the Domestic Revenue Mobilization Strategy by the Finance Ministry. DTS was also aimed at addressing revenue leakages.

In response to the report and concerns raised, John Musinguzi Rujoki, the URA Commissioner-General, stated that the cost of implementing DTS is designed to be manageable and outweighed by the benefits of improved tax compliance and reduced illicit trade. 

Musinguzi explained that significant improvement has been observed in sectors with high compliance, and the costs of DTS have been reviewed accordingly.

“As Uganda continues to modernize its tax system, the role of DTS remains crucial,” he added.

He noted that the focus now is on enhancing compliance across sectors, including Kombucha products, to fully realize the benefits of DTS and support Uganda’s broader economic goals

The report.

Conducted by PSFU in collaboration with PWC Uganda, the report indicates that in Kenya DTS prices are on average 28.7% lower than Uganda’s DTS, Rwanda’s (4.5%), Zambia’s (89.2%), and Tanzania’s DTS costs are 25.9% lower than Uganda’s.