The Private Sector Foundation Uganda (PSFU) has released a report highlighting the devastating impact of high Digital Tax Stamp (DTS) costs on manufacturers, resulting in business closures and significant job losses.
The report reveals that the implementation of DTS has led to an average 16% increase in operational expenses for manufacturers, equivalent to their Local Excise Duty obligations.
According to the report, 56% of manufacturers have experienced a surge in production costs, while 50% have reported diminished profitability. The high costs of DTS have disproportionately affected Small and Medium Enterprises (SMEs) with limited capital resources. Manufacturers have absorbed most of the costs, fearing that passing them on to consumers would impact demand.
The report cites the closure of several businesses, including Global Distillers Limited, Four-Star Beverages Limited, and London Distillers Limited, among others, due to the high costs of DTS.
The Uganda Alcohol Industry Association (UAIA) attributes these closures to the exorbitant costs of DTS, which vary across products, with wines and spirits incurring the highest costs at UGX 110 per stamp.
PSFU Executive Director Stephen Asiimwe notes that Uganda’s stamp prices are 38% higher than those in the East African region, despite sharing the same supplier, SICPA. He urges the government to review the implementation framework of DTS to achieve a more equitable system.
Uganda Breweries Limited Managing Director Andrew Kilonzo echoes this sentiment, calling for a review of the DTS implementation framework to minimize costs for manufacturers and importers.
He highlights the significant expenses incurred by UBL, including UGX 451m for machine installation and over UGX 77b for stamps, impacting shareholder value.
This system was launched in 2019 by the government with an aim of collecting Excise duty and it is mainly used by the Uganda Revenue Authority and the Uganda National Bureau of standards on different goods.
The report raises concerns about the disproportionate burden of DTS on small-scale producers and consumers, emphasizing the need for a more inclusive and cost-effective system. With Domestic Revenue collections growing at a lower rate than historical trends, the government must address the concerns of manufacturers and traders to ensure a more sustainable and equitable tax regime.
