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Uganda: High Tax On Cigarettes Could Raise Smuggling
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East African Business Week (Kampala)
28 April 2008
Posted to the web 28 April 2008
Phillip Nabyama
Jinja
The high tobacco tax of Ush26 (US$0.012) per stick continues to press more people into the dangerous but lucrative trade of selling un-customed cigarettes that bring in bigger profits, according to analysts.
On the backdrop of mounting pressure to improve revenue collections among others, Uganda Revenue Authority (URA) although continues to play 'cat and mouse' with the often cunning smugglers, has also scored to the delight of complaint businessmen.
The latest show of strength by URA was the April 18 incineration of over 19 million cigarettes valued at about Ush423 million ($251,785) at the Bank of Uganda incinerator outside Jinja town in Eastern Uganda.
Smuggled cigarettes in the 2005/06 financial year caused a loss of over Ush8 billion ($4.8 million) to the state in unpaid taxes. Polythene bags, electrical appliances and fuel are the other smuggled items.
Thousands of cartoons of cigarettes valued at billions of Uganda shillings from Kenya and DR Congo bearing fake Ugandan tax stamps and serial numbers have in the past been incinerated at the central bank facility.
Of the Supermatch brand, the cigarettes manufactured by Mastermind Kenya and destined for Sudan and Somalia based on tax stamps embedded on the packets, found their way into Uganda.
Without providing names, Mr. Enoch Walugembe, URA's assistant commissioner for enforcement told East African Business Week in Jinja that some very influential people were involved in the smuggling where government would have lost Ush511.42million ($304,416) in revenue had URA acted.
Although the incinerated cigarettes originated from Kenya, a finger has been pointed at the DR Congo as a source of uncustomed Supermatch.
Ironically, supermatch is also manufactured by Leaf Tobacco Uganda Limited (LTC) and CTC Congo, sister companies to Mastermind Kenya. The other problematic cigarette brands include SM from Rwanda and Pakistan's Boss.
In a peculiar incident in the past, officials from LTC were questioned, without any success over the continued smuggling of super match cigarettes into the country after consignments with the signage, "Made in Uganda by LTC" were intercepted.
Of recent, the taxman's fingers seem to have stopped pointing at DR Congo following the signing of a Memorandum of Understanding (MoU) with URA in January this year to check laxity exhibited in monitoring movement of cargo across the two borders.
Unlike before, DR Congo now insists that cigarettes manufactured in the country have local tax stamps just like the EAC countries demand.
"There is a drop in transit consignments from Kenya to DR Congo," Walugembe said.
While the tax on cigarettes in the region is 120% of the invoice value, Sudan levies a tax of 10% of the invoice value.
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Investigations by URA enforcement have showed that the Kenyan made Supermatch is transported to Sudan where taxes (10% of invoice value) are paid before being offloaded and brought into neighbouring Uganda.
Much as the supermatch problem has continued to taunt URA, British American Tobacco Uganda (BATU), the second local manufacturer is most frustrated over the increasing arrivals of smuggled cigarettes into the country.
Although BATU paid Ush40 billion ($23.81 million) in taxes in 2005, it a year later announced a structural shift from manufacturing cigarettes in Uganda, leaving LTC as sole manufacturer in a sector that generated over Ush79billion ($47.02 million) in exchange earnings in 2005.
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