One of the sectors most hurt by Covid-19 has been the beverages sector.
Morgan Boona, the Secretary-General for the Uganda Water and Juice Manufacturer’s Association recently said that due to the pandemic, the sector’s production capacity had fallen by about 40% while sales dropped to approximately by 65% during the second quarter.
But as the sector is getting on the long road to recovery, estimated to take over a year, they are now being presented with another hurdle, that could see their costs of operation not only jump by about 20%, but also threatens to further suppress an already fragile demand. That challenge is the cost of implementing Digital Tax Stamps (DTS).
Digital Tax Stamps are digital marks placed on excisable products that make it easy to trace the products for purposes of increasing tax compliance of the products. In Uganda, the stamps were introduced in October 2019 but went into full-scale execution in February 2020.
They are mandatory for spirits, tobacco, beer, water, sodas and wines- either produced in Uganda or imported.
Each stamp will cost, Shs15 per water bottle, Shs50 per bottle of beer, and Shs185 for wines and spirits. Although it looks like it is miniscule- for many of the large manufacturers whose production capacity is in millions of bottles per month, it could cost each of the large manufacturer more than Shs15 billion.
This is over and above the tax to be paid, something that Boona, in his interview with The New Vision equated to double-taxation.
“The machines and the stamps were introduced by government as an administrative measure, to determine how much is due in taxes, and who is complying or not. For us to meet the cost of this administrative tool is tantamount to double taxation,” he said.
As if this is not enough, according to Bonna, the government has gone back on its word and has said it shall not pay for the cost of the stamps for at least a year as promised in the Finance minister’s November 2019 letter to the manufacturers, effective February 2020.
In a letter written by the Finance Minister, Matia Kasaija on July 13th to the Uganda Revenue Authority Commissioner General and copied to the manufacturers, Kasaija now says that manufacturers should effective 1st July 2020 meet the costs of DTS.
“When Government introduced DTS in Financial Year 2019/20, it undertook to pay the fees that should have otherwise been paid by the manufacturers for FInancial Year 2019/20. This decision was communicated to you in my letter to His Excellency the President Ref: TPD 81/137/05 Vol. 7, dated 19th July 2019. The purpose of this letter is to advise that effective 1st July 2020, manufacturers will be required to pay for the costs of DTS ,” Kasaija wrote, without giving reasons for the sudden change of heart.
According to Boona, Kasaija’s decision has thrown the manufacturers are the deep end.
“This program was launched in February of this year, which only leaves us four months to start meeting the cost of the machines and stamps. This is contrary to our initial agreement, that they would shoulder the cost for one calendar year as we adjust and adopt,” he told a local newspaper.
Manufacturers petition President Museveni
Now, in a bid to save their livelihoods, the manufacturers under their Alcohol Manufacturers Association of Uganda and the Uganda Water and Juice Manufacturers Association have petitioned President Yoweri Kaguta Museveni, asking him to intervene, to make sure that it at least continues to pay for the costs of DTS for at least a period of one year.
In the online petition, titled: Save Uganda’s Farmers, Retailers and Distributors’ Livelihoods – say #NoToTaxStampCosts that can be found on this link: http://chng.it/Y9pNBJnMds, the associations say, if the president does not intervene, nearly 138,000 jobs are at risk as well as the livelihoods of and with them, the 352,000 households that they support.
“Our member industries were appreciative that the Government had recognized the severe impact that imposing these costs on industry would have and as a result agreed that Government would bear the cost of DTS. This Shs 15 billion per manufacturer per year cost will radically increase the costs of doing business for Ugandan manufacturers, with far-reaching consequences for all parts of their Ugandan value chains, including farmers, retailers, distributors, government, and consumers,” the manufacturers say in their petition.
“All our efforts to obtain reassurance from the Government that it will cover the DTS costs beyond 30 June 2020, have so far proved futile. We have been left with no other alternative but to request your help. If the industry has to pay for tax stamps, the livelihoods of farmers, retailers, distributors, and the public will all be drastically affected. The situation is even more pressing as a result of the Covid-19 pandemic which has severely impacted the operations and extensive supply chains of the very industries that will be affected by the imposition of DTS costs,” the manufacturers further say in their petition.