Uganda: Government changes the way of calculating beer tax

In order for Uganda Revenue Authority (URA) to collect the required Shs15 trillion tax revenue, Parliament approved 72 amendments on income tax, excise duty, Value Added Tax (VAT) and EAC Common External Tariff, AllAfrica.com reported on June 21.

The tax measures, according to Ms Doris Akol, the URA Commissioner General, will enable the government to collect Shs400 bln during the financial year 2017/18. URA's collection is up from the Shs13.1 trillion in 2016/17.

Despite the contestations from the beer industry players, the government has gone on to change the way it calculates the tax on beer. In the past, the government has been imposing a percentage rate depending on the local material content (excluding water) used in the manufacturing process. Any raw material used that is about 75 per cent of the ingredients attracted an excise duty rate of 30 per cent; whereas other malted beer (less than 25 per cent of locally sourced ingredients) attracted a 60 per cent excise duty rate. However, the amendment to the Excise Duty Act is for the government to charge 60 per cent or Shs1,860 per litre, whichever is higher on malted beer. On beer that has 75 per cent local raw material, the rate is 30 per cent or Shs650 per litre, whichever is higher.

Mr Mark Ocitti Ongom, the managing director at Uganda Breweries Limited, says the shift from the ad valorem to specific excise tax did not result in an increase in the rates. However, as a result of the clause "whichever is higher" there will be an impact on the final taxes paid in respect of particular beer and spirit brands.

"For example, in the case of beer whose local raw material content is at least 75 per cent by weight of its constituents, the ad valorem rate of 30 per cent tax per litre could have been Shs500. Now as a result of the new rate of Shs650 per litre, the new tax will be higher so in this case, there is an increase in excise duty payable."

This might push up beer prices. "With an increase in tax as a result of the introduction of the specific excise tax alternative, there might be a need to increase the prices of our products making them more expensive for consumers," Mr Ociiti says.

According to URA, the adjustment was made because the current rating only considered the value in the calculation of tax but excluded the volume.

Mr Edgar Isingoma, a partner at KPMG, notes that the move by URA on beverage companies is meant to "plug the leakages experienced in calculating taxes as often the value doesn't reflect the volumes."

The price of beer (except for the Eagle Brand) has not changed in the last five years but that could change with the new tax regime.

For the soda beverage industry, the rate was previously 13 per cent but in the next financial year, it will be 13 per cent or Shs240 per litre, whichever is higher. The industry players here also contested this but it did not change and now this could have an implication on the final price of soda.

21 June, 2017