Industrialisation dream: Will taxing imports protect local manufacturers?

Malaba Road – the gateway to Uganda’s imports, is wearing out. While the lane that takes exports is clear, the other one which ferries imports is jammed up with traffic. A closer look shows that a section of this lane is sinking in, because of the heavy-laden trucks of imported goods that create a deficit in the balance of payments.

No time has government placed so much importance on boosting the local manufacturing industry like now.
It is increasingly clear that government is taking steps to make the ‘Buy-Uganda Build-Uganda’ mantra a reality going by the 35 per cent and 60 per cent import duty slapped on imported products that Uganda can otherwise produce.

Government, through the 2018-19 budget will prioritise industrialisation, job creation and shared prosperity.
With the same agenda, the Uganda Revenue Authority, (URA) whose mandate is to collect at least Shs16 trillion, recently highlighted new tax measures that are expected to shield local manufacturers against selected imported items which the country can produce.

Packaging materials
Packaging materials such as boxes and other packing containers amounting to 13,485 tonnes valued at $15.4m is imported from outside the region while another 4,495 tonnes valued at $11.2m is imported from within the East African region. A 35% levy on imports is now aimed at protecting local manufacturers of these boxes such as Riley Packaging, Makks Packaging and Graphic Systems among others.

Trushar Upadhyay, the manager Graphic systems cannot wait to see import substitution rolled out. Having tirelessly had to compete at an unfair advantage with imports, he believes this measure will see industries in the country grow.
“We have enough capacity to supply Uganda with all packages. We started exporting packaging material to Tanzania. If I can supply to Tanzania, I can produce for Uganda,” he believes.

For Upadhyay, to invest more in the business was only a cost without benefit. But he is optimistic that they will get opportunity to sell and invest in the necessary material to boost quality.

A specific duty at a rate of $ 200/MT on the applicable rate is 25 per cent or $200/MT whichever is higher for one year has been introduced to support the steel sector and encourage local production within the country considering heavy investment.

This measure is expected to offer market space to Roofings Ltd, Steel & Tube, Uganda BAATI, among other steel manufacturers.
“When we develop our very large iron ore deposits here in the country, we can generate at least half a trillion shillings each year and save in that same value importation of steel products,” says Mr Abid Alam, a local industrialist.

Soap and detergent
Soap and detergents will also attract an applicable rate of 35 per cent instead of 25 per cent because URA says “There is enough capacity by the manufacturers in the region.”
Currently, Uganda is importing upto 2,082 tonnes soap and other organic surface active products valued at $2.7m from outside the region and 4,102 tones valued at $6.4m from within the EAC Region.”

On Poly Cotton Material used for making mattresses, import duty is applicable at a rate of 10 per cent instead of 25 per cent for one year. This policy is meant to support the textile sector by increasing availability of these materials, given it is scarce in the region.

Gas cylinders
Gas cylinders also form that large import for the country that will now see a 25 per cent import duty instead of 0% for a year. This is to increase the production of these items in the country with firms such as Bruhan Engineering Ltd - a local manufacturer in Uganda is currently producing 600 cylinders per day and is projected to increase the same to 1200 cylinders per day.

Barley
Local barley growers – a raw material in beer production, also have some relief considering the lower 10 per cent levy on the commodity instead of 25 per cent for one year. This measure is meant to supplement on the barley locally grown within the region.

A 35 per cent tax has been slapped on irish potatoes which are still being imported into the country in thousands of metric tonnes. This is up from the 25 per centfor one year has now been levied.
Uganda is importing13.6 tonnes of irish potatoes valued at $8,754 from outside the region and 18,059 tonnes valued at $4.8m from the EAC region.

Expert’s view
Mr Steven Mugisha, director tax services Ligomarc Advocates, believes that a strong partnership and working capacity of the Standards unit should be guaranteed while implementing these measures.

The tax expert has seen the measures driving imports to their death. He says the quality of local products should attract more attention because the measure could be misused to the country’s detriment.
“To protect growth within a certain industry, it works but the problem is over protecting compromises quality. We have to ensure that the Standards body monitors local manufacturers. Much as the industry will grow, in absence of quality monitoring, the customer will suffer,” he says.

Sausages
The latest fact sheet by the URA also indicates that a new Import duty applicable at a rate of 35 per cent, up from 25 per cent for one year has been effected on imported sausages. Uganda is importing 5.8 tonnes of sausages valued at $29,214 from outside the region and 278.6 tones valued at $ 1.2m from within EAC.

Uganda is importing chewing gum worth 64.9 tonnes valued at $130,474 from outside the region and 3,267 tones valued at $8.4m from within the EAC region. Now an import duty at a rate of 35 per cent instead of 25 per cent has been imposed on it for a year.

Related confection Import duty is applicable at a rate of 35 per cent instead of 25 per cent for one year. There is enough production capacity in the region and it should be noted that Uganda is importing sweets 1564 tonnes valued at $1.6m from outside the region and 3,743 tones valued at $4.5m from within the EAC region.

Import duty is applicable at a rate of 35 per cent instead of 25 per cent for a year effective this July on importing chocolates worth 640 tonnes valued at $1.6m from outside the region and 37.6 tones valued at $117,079 from within the EAC Region.

Biscuits
On biscuits, a 35 per cent import duty will be levied to support growth of locally based factories against importing biscuits worth 2,930 tonnes valued at $3.6m from outside EAC and 398 tonnes valued at $1m from within EAC.

Tomato sauce
Uganda imports about 640 tonnes of tomato sauce valued at $16,200 (Shs62.8m).Tomato sauce imports will now attract an additional 10 per cent import duty just like 60 tonnes of water worth $872,000 which will attract a 35 per cent import duty.
“An annual 10 per cent increase is a perfect instrument to stimulate local capacity. But the supply side should tackle quality issues to fill the gap in terms quality and quantity,” says Mr John Walugembe, of the Federation of Small and Medium Enterprises.

Lubricants
Lubricants too will now attract a 35 per cent import duty as the economy with a huge import bill, attempts to shake off expenditures worth $43.5m on 25,000 tonnes of lubricants annually.

Toilet paper
Import duty of 60 per cent, up from 25 per cent has been slumped on importing toilet paper of nearly1,456 tonnes combined valued at $1.5m from outside the region and 158.3 tonnes valued at $362,198 from within the EAC Region. Local manufacturers such as Siti Industries, Ntake, Bio search, Global Papers Products Ltd will be shielded through this measure.

Local manufacturers have hailed this initiative saying, “This means we have demonstrated production capacity in these are areas. Our long standing ability means that competition from external actors such as those from China whose production costs are much lower will reduce gradually to allow for indigenous enterprises to meet the market needs,” says Uganda Manufcturer’s executive director Daniel Birungi.

OTHER MEASURES

Uganda is promoting its textile industry in linking production of cotton to processing. In view of more than 4,640 tonnes of blankets $8m being imported into the country, a further 10 per cent import duty from 25 per cent has been initiated to protect manufacturers such as Sino Textiles limited.

Import duty at $200/250MT whichever is higher is taking effect for importing of articles of steel valued at $14.4m worth 6, 184 tonnes from within EAC. This measure is expected to offer market space to Roofings Ltd, Steel & Tube, Uganda BAATI, among other steel manufacturers.

Uganda is importing doors, windows and their frames to the tune of 698 tonnes valued at $945,358 from outside the Region and 2.6 tones valued at $14,151 from within EAC. A new 35 per cent import duty on these imports is expected to cushion industries such as Hwan Sung, Master Wood Ltd among others and other local cottage Industries.

The taxman has slapped a 60 per cent Import duty on toothbrushes up from 25 per cent. Uganda is importing 243 tonnes of toothbrushes valued at $810,507 from outside the region and 2.3 tonnes valued at $19,989 from within EAC.
Another 154 tonnes of ball point pens valued at $563,552 are imported from outside the region and 482 tonnes valued at $1.2m are imported from within EAC.

Previous developments
Buy Uganda, Build Uganda
Last year, the government launched the ‘Buy Uganda Build Uganda’ policy whose main objective is to promote the consumption and use of locally manufactured goods and services (both through public sector procurement and the channels of commerce).
In the last six years alone, the Ugandan government has committed more than Shs16 trillion to at least 30 contracts. Out of these contracts, Shs12.3 trillion was borrowed money and the remaining Shs3.6 trillion was generated from taxpayers.

Who gets contracts?
Experts say that at least 91 per cent of the contracts were awarded to Chinese companies. This means 60 per cent of the Shs16 trillion went to Chinese companies and the rest was distributed to companies from, mostly India and Turkey. No contract was awarded to the local contractors or producers.

Supporting 'BUBU'

Uganda’s main industries include steel production, cement, cotton, tobacco, and sugar among others.
The proposal for BUBU legislation would, if implemented, offer domestic producers preferential treatment on the domestic market over our EAC partners, for example, through preferential public procurements policies,