The Private Sector Foundation Uganda (PSFU) has released a report indicating that the high cost of Digital Tax Stamps continues to take a toll on manufacturers, with some closing operations and thousands of jobs lost.
According to the report, manufacturers’ operational expenses have increased by an average of 16% of their Local Excise Duty obligations, hampering business growth and expansion. In addition, 56% of manufacturers reported an increase in production costs, and 50% reported diminished profitability.
“The implementation of DTS led to a significant increase in the cost of operations for most manufacturers. These costs include the procurement of hardware, software, and infrastructure required for DTS compliance. 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.
While launching the DTS impact study report, Executive Director PSFU Stephen Asiimwe said manufacturers absorb most of the costs and do not pass them on to final consumers, for fear of affecting consumer demand.
This, he said, has led to business closures in some businesses such as alcoholic beverage 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 is 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.
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 also aimed to address revenue leakages.
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.
Domestic Revenue (Local Excise Duty) collections continued to grow after the introduction of DTS, but at a lower rate than the historical growth rate.
“Before the implementation of the DTS (Pre-DTS), LED collections experienced significant growth with a 12% increase, reaching UGX 2.13 trillion from July 2016 to June 2019. The analysis represents an overall LED revenue growth rate of 9% between July 2016 and June 2023.”