East African Business Week (Kampala)
Edris Kisambira
11 January 2009
Kampala — A major taxation policy proposed by East Africa in 2007 to limit use of polythene to conserve the environment faces imminent collapse.
This becomes apparent as Kenya and Tanzania renege on the application of the 120% levy on all manufactured polythene that is below 30 microns.
Immediately the proposal was agreed by all three members, Uganda complied by banning import and manufacture of polythene that is below 30 microns and has imposed the punitive 120% levy but is now suffering for it.
Kenya has done the opposite and has kept postponing the imposition of the 120% levy claiming it needs to consult further.
In November 2008, Kenya unilaterally reduced the levy from 120% to 50% - something that has created jitters within the plastics business especially on the Ugandan side.
Kenya has also unilaterally allowed its plastics manufacturers to produce polythene of 30 microns and below as long as it is for export.
Kenya has more than 115 companies that manufacture plastics and these have continued to produce polythene of more than 30 microns because of a ready market across the border.
Attempts by Uganda Revenue Authority (URA) and other enforcement agencies to stop the smugglers have so far failed as the authorities have been overwhelmed by the scale of the operation.
Further, failure by Uganda's National Environment Management Authority (NEMA) to catch the retailers who consume the polythene for packaging purposes has worsened the situation.
Tanzania also went against the agreed specifications by choosing the type of polythene that will draw the 120% punitive levy.
This confusion in the operationalisation of the policy has led to an imbalance that has created a condusive environment for smuggling polythene into Uganda considering that Ugandan manufacturers cannot sell their polythene in the face of cheaper polythene from Kenya.
Over the last one year, smuggling of polythene that is below 30 microns (mainly 10 and 20 microns) has escalated and flooded the Uganda market.
It is so huge that information available from the Uganda Revenue Authority (URA) indicates that polythene is now the number one item that is most smuggled into Uganda, having overtaken cigarettes.
Since smuggling at this unprecedented level takes place, the punitive approach cannot work because cheaper polythene is readily available.
As it is, this is hurting twelve Ugandan polythene makers that are saddled with unpaid taxes and are threatened with imminent closure. URA has taken the companies in question to court demanding that they clear accumulated tax arrears of between UShs1.5 billion (about US$800,000) and UShs2 billion ($1 million) since the levy came into force.
The smuggling of polythene has caused other difficulties among stakeholders according to Gideon Badagawa, the executive director Uganda Manufacturers Association (UMA). Badagawa said the situation has strained the relationship between the private sector and the implementing bodies trying to do their job but faced with manufacturers who are genuinely unable to meet the requirements.
The situation has also caused misunderstandings between manufacturers and traders with each suspecting the other of intentions to put them out of business and has stretched efforts and resources of enforcement agencies.
Kenya argues that it cannot hurt their big industrial investments by stopping them to manufacture polythene of below 30 microns.
Because of the confusion, revenue collection efforts for 120% excise duty is facing difficulties in Uganda, with no single collection made so far, because manufacturers are unable to implement it due to unprecedented competition from smuggling.
Badagawa said member states of the East African Community (EAC) need to fully commit to policies and live with them and not backtrack to cause confusion. In Uganda, 12 companies are about to close because they have not paid the 120% on excise duty on plastics.
At the time the ban on that type of polythene and the accompanying levy were proposed, it was assumed that all the three East African countries at the time would impose the ban at the same time.
The three finance ministers reckoned that categories of plastics involved were understood and were clear to all.
No smuggling was envisaged, and if at all this happened, it would be adequately controlled by the customs and other authorities of the three member states and that compliance would be monitored at the borders.
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