How British American Tobacco cut its tax bill

Wednesday June 5 2019

BATU took advantage of the business environment

BATU took advantage of the business environment to scale down on its operations, which in essence meant that it could cost less on taxes, employees and other such operations 

By Joanita Mbabazi

British American Tobacco Uganda (BATU) is 70 per cent owned by British America Tobacco Investments, a UK subsidiary of British American Tobacco.
It closed its production unit in Uganda in 2013 and shifted to Kenya in a move that it said sought to consolidate costs.
However, the company maintains a thin marketing unit in Uganda through which it markets its cigarettes, among them Sportsman, Safari, Dunhill and Rex.
In essence, the BATU unit in Uganda passes off as a sales agent, marketing products manufactured elsewhere.
According to Mr Moses Talibita, the Uganda National Health Consumers Organisation legal officer, this could have been a calculated move after the cigarette sector was slapped with heavy taxes and tough limitations.
In the 2012/13 Excise Tariff (Amendment) Bill, tax on cigarettes was increased to nearly 60 per cent, which meant a sudden increase in product prices.
The amendments meant that low segment cigarettes increased from Shs75 to Shs100 per stick while premium brand rose from Shs200 to Shs250 per stick.
The price increments were exacerbated by a new law, which is 2016 banned smoking in public places, advertising and open display of cigarettes.
The law also banned the sale of electronic cigarettes, flavoured tobacco for water pipes or shishas and sale of single cigarettes, labelling and sale of tobacco products to under 21-year-olds.
Therefore, according to Mr Talibita, BATU took advantage of the business environment to scale down on its operations, which in essence meant that it could cost less on taxes, employees and other such operations.
“Being an import company now they [just] distribute their cigarettes through retailers,” he says.
Between 2000 and 2006, BATU was among Uganda’s top 10 tax payers. However, the company has since fallen to the peripherals as it maintains skeleton operations in Uganda.
In 2016, BATU remitted Shs42b. The company, which now is a net importer, has brands that pass off as BAT Uganda yet majority are imported from Kenya.
Specifically, sportsman and safari cigarettes continue to sell as Ugandan products yet they are manufactured in Kenya. As of 2015, BATU stopped contracting farmers to grow tobacco leaf opting to only distribute cigarettes imported from other subsidiaries, including Kenya.
The company continued to scale down its operations selling its cigarette manufacturing and warehousing units. At the time, at least 135 jobs were affected and as of 2015, the company had scaled down to about 35 employees.
As a company, BATU is using the provisions of the East African Community to effectively sell its products in Uganda and is making good returns.
For instance, BATU pays a tax percentage of 35 per cent under the EAC Common External Tariff provisions to market and sell its products in Uganda compared to more than 60 per cent that it would have paid if it was manufacturing its products here.
Other taxes such as Valued Added Tax (VAT) and Pay As You Earn, among others are provisioned on BATU’s income here.
However, these are all provisioned on a thin operational structure, which limits how much the company pays.
BATU has segmented its products to cater for different categories of people. Dunhill and Rex pass off for the corporate smokers while Sportsman and Safari target low income smokers.

Cost of tobacco

Smoking is one of the leading causes of cancer.
According to a 2014 report compiled by Health Policy and Planning, Uganda spends more than Shs156b to treat tobacco related illnesses.
This, according to some experts, partly informs the fight against cigarette smoking, which is blamed for a number of diseases in Uganda.