A new report by the Uganda Alcohol Industry Association has indicated that government loses shs1.6 trillion due to evasion of tax by the illicit alcohol.
The report, titled “Understanding and Sizing Illicit Alcohol Consumption in Uganda” was released from research done in 2021 by Euromonitor International, a leading independent provider of strategic market research for the past 40 years.
In compiling this report, Euromonitor conducted a review of publicly available secondary resources, retail channel observations, opinions from multiple stakeholders to identify where and how Illicit alcohol is sold, distributed and consumed and also its socio- economic impact on society.
The report indicated that the volume of illicit alcohol on the market grew by 65% whereas this type of alcohol controls 50% of the entire alcohol markets in Uganda.
It is also reported that consumption of illicit alcohol grew by 9% in the last three years and this further went up during the lockdown following the closure of bars.
Speaking at the launch of the report, the state State Minister for Trade , Industry and Cooperatives, David Bahati, said he was surprised by the amount of money that government is losing through some lax and the not so strong laws on enforcement of the Enguli Act which prohibits the manufacture and consumption of Enguli if one does not have a Licence .
“We shall relook at this law and seek to update it in enforcing the production and sale of alcoholic beverages to prevent the issues we have heard today that are attributed to the consumption of unregulated alcohol like health issues and importantly the loss of revenue to government,”Bahati said.
He added that this is money that could be put to good use providing much needed social services to the people.
According to the report, current penalties and punishments stipulated in the act are not sufficient in curbing regular or new illicit players in the production, sales and smuggling of illicit alcoholic drinks.
The report also indicates that between 2017-2021, the value market size of illicit alcoholic drinks increased at a 18.3% Compound Annual Growth Rate (CAGR) from $ 577.8 million in 2017 to $956.8 million in 2020.
In the same period, the total consumption of illicit alcohol recorded increased volume growth at a 9.1% CAGR, impacted by high inflation rates, low disposable incomes, poverty and a lack of regulation enforcement.
Illicit alcohol is widely sold directly from private households which are involved in the production, as well as consumption of these beverages.
The association chairman, Onapito Ekomoloit said that as an industry, they are heavily impacted by the thriving illicit alcohol trade noting that the industry has to carry the heavy taxation burden and regulatory measures that are not fairly distributed yet the sector that is taking the most out of this trade goes unregulated, untaxed.
“The scale of illicit alcohol is often underestimated, making the formal sector an easy target of regulatory bodies; a disproportionate blame for alcohol related harm and the resultant punitive taxation regime. Illicit alcohol currently makes up 65% of the total market volume. That means the rest of the industry players make 35% and yet, we are among the top 10 tax payers in the country due to the heavy taxation imposed on our products,”Onapito said.
A fairer, more balanced approach on equitable taxation of the industry would have positive ripple effects across the entire value chain. It would mean we are able to support more farmers, invest more in our industries and create more employment opportunities across the board.”
He however commended government on the Digital Tax Stamps that he said have seen the importation and sale of illicit spirits reduce substantially in the last one year, but also noted that the proposed changes under 2021 Amendment of Excise Duty Bill would lead to increase of retail unit prices in spirits, beer and other alcoholic drinks.
As a result, legally produced alcoholic drinks would become even less affordable for more Ugandans driving them to illicit consumption.
According to the report, drivers of illicit trade include insufficient law enforcement, low prices and wide availability across informal channels in comparison to licit counterparts, porous borders and corruption among officials.
The report indicates that illicit alcohol has three categories including home brew that is distilled and sold
for consumption, commonly known as Waragi, Illegal import and sale of alcoholic beverages and the use of surrogate alcohol like pharmaceutical alcohol diverted to the alcoholic beverages market.