By Arthur Bagenze
The importance of a thriving, legitimate economy cannot be overstated. This rings true in Uganda’s battle against illicit trade across multiple sectors, from day-to-day commodities such as cooking oil, electronics and other fast‑moving consumer goods to excisable goods like tobacco and alcohol. Illicit trade, in whatever form, is an existential threat to our economic stability, fiscal integrity and investment climate, and it must not be left to desecrate the fabric of our nation’s livelihoods.
An independent third-party study indicates that illicit tax-evaded cigarettes now account for 34% of the cigarette market in Uganda, up from 25% in 2023. This spike suggests a rapidly escalating problem, with the government deprived of approximately UShs 32 billion in annual cigarette tax revenue. The situation also echoes similar challenges in comparative sectors such as alcohol.
Research commissioned by the Uganda Alcohol Industry Association (UAIA) and conducted by Euromonitor International shows that 67% of all alcohol consumed in Uganda in 2024 was produced or traded outside the tax net. Ugandans now drink 4.6 litres of pure illicit alcohol per capita, double the volume of legal alcohol. The consequence is a fiscal gap of about UShs 3 trillion in a single year.
Illicit trade flourishes because it delivers three advantages to perpetrators: price, proximity and perception. Low-income consumers view unregulated liquor or untaxed staples such as rice and wheat flour as affordable substitutes to commodities that have been subjected to proper regulatory procedures, which they perceive to be more costly. Illicit traders, on the other hand, exploit porous borders, policy gaps and weak enforcement. More worryingly, only a fraction of the public associates illicit goods with the lost opportunity or benefit of funding public services. This combination creates a vicious cycle in which criminal networks prosper while compliant businesses shoulder an ever-rising tax burden.
Evidently, this situation demands an urgent, multifaceted government response. First, enforcement cannot be selective or isolated. Addressing it requires a coordinated, multi-agency response involving the Uganda Revenue Authority, law enforcement, customs, government agencies, policymakers and industry stakeholders.
Encouragingly, the URA has stepped up enforcement in this realm. In the past year, for instance, URA has destroyed 37 tonnes of smuggled cigarettes and seized assortments of illegal rice and wheat flour in Eastern Uganda.
Second, the regulatory environment itself requires recalibration. The uneven playing field created by unchecked illicit trade erodes the incentives for businesses to remain compliant. Tax policy must strike a delicate balance by discouraging harmful consumption while minimising the price gap that makes untaxed alternatives attractive. Excise duty increases, however well-intentioned, will be counterproductive unless accompanied by robust enforcement, effective market monitoring and regional cooperation that makes smuggling unprofitable.
If allowed to expand further, illicit trade will undermine Uganda’s industrialisation strategy, constrain the fiscal space and weaken the social contract between taxpayers and the state. Uganda’s aspirations under Vision 2040 to transform into an upper-middle-income country by strengthening the economy to harness opportunities hinge on sustainable revenue growth and economic stability – both of which are jeopardised when criminal networks are left to wreak havoc on Ugandans through economic sabotage.
Illicit trade is not a victimless crime. It chips away at Uganda’s developmental progress, siphons tax revenue meant for public services and undermines legitimate businesses striving to contribute meaningfully to the economy. We urge policymakers, enforcement agencies and stakeholders to intensify collaborative enforcement action and protect legitimate livelihoods and enterprises and ultimately the collective prosperity of Ugandans.
The writer is the Managing Director, BAT Uganda.