Local tobacco firms to pay less taxes

A tobacco farmer in Hoima weeds her garden. Government hopes to help local tobacco manufacturers venture into the Asian market. PHOTO BY FRANCIS MUGERWA

Kampala- Finance minister Matia Kasaija has said local tobacco firms that add value on the cash crop will be moderately taxed compared to companies that only sell imported processed products.

According to Mr Kasaija, it is in the interest of the government to support the local manufactures, specifically those adding value on the raw materials that are being produced locally.

Speaking last week while touring the factories of Leaf Tobacco and Commodities (U) Ltd in Kampala and Arua, Mr Kasaija said the country needs foreign exchange which can be generated through more exports rather than imports.

He said: “I am impressed by the investments of Leaf Tobacco and Commodities (U) Ltd. As government, we have a duty to help such factories that generate foreign exchange, create jobs and give us revenue without getting outcompeted.”

He continued: “This means that we shall have to structure taxes in such a way that they remain in business. They must have advantages over others that do not do the things they do—adding value and generating foreign exchange.”

Tax increment
Government is now considering increasing taxes on tobacco imports after it emerged that both industry players are subjected to the same stringent tax regime.

“How about charging Shs40,000 per 1,000 sticks of cigarettes and for those who add value and export remains at Shs35,000 per 1,000 sticks? Isn’t that fair?” Mr Kasaija wondered, as Mr Gabriel Ajedra, the State minister for Investment, seemed to agree with him.

According to Mr Ajedra, given the importance of the industry, the government is looking at helping local manufacturers venture into the Asian market, saying just one per cent of the Chinese market is good enough a fortune for the nascent company.
The corporate relations director, Leaf Tobacco and Commodities (U) Ltd, Mr David Kamukama, said the company employs 192 people and is working with 13,000 tobacco farmers.

Last year, it garnered $3.1m (Shs9.2b) out of export. The company exports 95 per cent of processed tobacco and only five per cent is consumed locally. Nearly Shs60 billion has been invested in machineries alone.

Revenue collections
Employees- Approximately 75,000 farmers grow tobacco in Uganda of which about 36,000 of these farmers grow burley (Air Cured) tobacco, and the rest of the farmers grow Virginia (Flue Cured) and Dark Fire Cured varieties in the original tobacco growing regions of West Nile, Northern Uganda, Bunyoro and North Kigezi.

Market- Local market for cigarette is small and 95 percent of the 35,000 tonnes of tobacco produced in Uganda annually is exported to cigarette manufacturers in different parts of the world, generating at least $70 million (Shs209 billion) in forex exchange earnings for Uganda.

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