The alcoholic beverage sector is raising concerns about the potential impact of new tax proposals outlined in the Excise Duty (Amendment) Bill 2024, currently under scrutiny by Parliament.
If passed, stakeholders anticipate that these proposals could render alcoholic beverages unaffordable to consumers, consequently leading to a reduction in volume sales and a subsequent decline in annual tax revenues to the Government.
Andrew Kilonzo, the Managing Director of Uganda Breweries, said the expected increase in government revenue will not materialize as the 20% tax increase on both locally manufactured and imported spirits will make the products unaffordable to consumers thus resulting in reduced volume sales.
He further projected a potential loss of UGX 49.7 billion from the total industry and UGX 28.5 billion from Uganda Breweries, should the proposed tax amendments come into effect.
Kilonzo highlighted a particular clause in the bill, Sub-clause 3(c), which imposes a tax of UGX 5,000 per litre on imported alcoholic beverages with an alcoholic strength of 80%.
He argued that such tax increments could incentivize illicit trade, as consumers may turn to cheaper, unregulated alternatives, thereby undermining legitimate businesses and further reducing government revenue.
Proposed alternatives were also presented during interactions with the Parliament’s Finance Planning and Economic Development Committee.
Jackie Tahakanizibwa, Chairperson of the Uganda Alcohol Industry Association (UAIA), advocated for tax reforms aimed at bolstering the economy. She suggested transitioning from an “ad valorem” to a “specific” excise structure for spirits, citing its potential benefits.
Additionally, she proposed tax harmonization on ready-to-drink beverages with locally produced beers based on alcohol content, fostering the consumption of locally sourced raw materials.
Of particular concern is Uganda’s position within the East African Community (EAC), where it currently maintains the highest excise rates on spirits.
Compared to neighboring states, Uganda’s excise duty rates on imported spirits are notably higher, potentially exacerbating parallel importation and smuggling activities.
Echoing these concerns, Sheema Municipality MP Dickson Kateshumbwa cautioned against Uganda’s disproportionately high tax regime, fearing its implications for smuggling and cross-border trade.
He urged a thorough examination of the proposed tax amendments, emphasizing the precarious position of landlocked countries like Uganda in maintaining competitive tax structures.
Moreover, Uganda faces a significant challenge of illicit alcohol trade, estimated at 65% according to a 2021 Euromonitor Study.
This illicit trade encompasses undeclared production, counterfeiting, and smuggling, posing further threats to government revenue and public health.
In light of these apprehensions, stakeholders call for a balanced approach to taxation that ensures government revenue generation without compromising affordability or exacerbating illicit trade in alcoholic beverages.
