Cigarettes smuggling eats into Batu’s earnings

British American Tobacco Uganda (Batu) has said smuggling and illicit trade in cigarettes continue to eat into its market, threatening sustainable business operations, amid a number of challenges occasioned by among others, Covid-19. 

Speaking during the company’s annual general meeting in Kampala last week, Mr Kirunda Magoola, the Batu managing director, said illicit cigarettes trade is getting to worrying levels, noting that a third party research had indicated an increase in illicit trade incidences, rising to 17.4 per cent by the end of December 2020. 
This, among other factors, he said, had forced a reduction in earnings in which Batu recorded a 1 per cent decline in for the period ended December 2020. 

In his briefing, Mr Kirunda indicated that gross revenue had declined to Shs162b, resulting from a 9 per cent reduction in sales mainly due to Covid-19-related disruptions and in part illicit trade. 
Batu estimates that about 44 per cent of illicit cigarettes sold in Uganda are smuggled from Kenya. 
However, the company remained resilient during 2020, registering an increase in profits, which grew by 27 per cent to Shs20b after tax.
Mr Kirunda, however, noted the strong performance was under threat due to unchecked distribution of tax-evaded and unregulated products, which have far reaching health and economic implications. 

Batu last year welcomed the move to implement digital tax stamps, especially on cigarettes products, saying it would help in the elimination of illicit products from the market. 
However, it is not clear how this has worked out in its favour, given the noted increase in smuggled cigarettes products currently on the market. 
Batu’s total revenue contribution to government, according  to Mr Kirunda, dropped by 5 per cent to Shs91b, reflecting a decrease in Excise Duty and Value Added Tax as a result of lower than planned sales.  

It is estimated that illicit trade in cigarettes denies government approximately Shs30b in revenue annually.
Mr Kirunda called upon government “to urgently ramp up enforcement of [illicit cigarettes] to ensure a fully compliant operating environment in the tobacco industry, and to facilitate URA’s clamp down on tax evaded product.”