Closing tax leakages: The case of digital tax stamps 

Digital solutions remain a key channel through which URA is seeking to widen the tax base. Photo / File 

What you need to know:

  • URA says that by June 2023, compliant manufacturers and importers had grown 1,120 and 330 importers, respectively from just under 200 in 2019 

In 2019, Uganda Revenue Authority (URA) introduced the Digital Tax Stamp (DTS) system, a pivotal component of the broader digital tracking solution initiative. 

The system sought to curb illicit trade, prevent revenue loss, and improve taxpayer compliance across Uganda.  

Indeed, four years down the road, Mr Ibrahim Bbosa, the URA assistant commissioner of public and corporate Affairs, says it has been a cornerstone in the efforts to enhance transparency in the production and import of consumable goods, directly contributing to an increase in tax collection and broadening of the tax base.

DTS mandates that certain consumable products, primarily those rated as excisable goods, bear digital stamps. 

Out of 25 excisable products, 13 including high revenue-generating goods such as alcoholic beverages (beer, spirits, wines, and other fermented beverages), tobacco products, and non-alcoholic beverages such as bottled water, soda, and fruit juices have been gazetted in the last four years to carry digital stamps. 

The stamps have also been extended to other essential consumables such as sugar, cement, and cooking oil.

The introduction of digital tax stamps involves affixing a physical paper stamp with embedded security features and unique codes to the products or their packaging. 

The technological measure, URA says, has been key in combating counterfeiting, tracking and tracing of goods throughout the supply chain, and ensuring that all products on the market are compliant with tax regulations. 

“The data generated from these stamps provides URA with real-time insights into production volumes and sales data, thereby tightening control over excise duty compliance and enhancing revenue assurance,” Mr Bbosa says. 

Initially, focusing on six product categories, Mr Bbosa says the system’s effectiveness has helped to expand and encompass more product types and led to an increase in the number of registered manufacturers and importers. 

“For instance, by June 2023, registrations surged to over 1,120 manufacturers and 330 importers. Such extensive growth highlights the significant impact of the DTS on enhancing tax compliance,” he says. 

The implementation of DTS has shown particular effectiveness in specific categories such as the spirits sector, which has seen registrations grow by more than  450 percent, thus generating an additional revenue of Shs36.44b. 

Similarly, the beer and soft drinks sectors have registered substantial increases in production volumes, further contributing to the overall growth in tax revenues.

The overall impact of DTS has been on tax revenue, which has grown by 30 percent, from Shs741b to Shs963b. 

Additionally, the number of taxpayers registered after the introduction of DTS has risen significantly. 

However, critics, among which include manufacturers, argue that the cost of digital tax stamps places an economic burden, which has impeded new investment plans and in the unfortunate scenario, closures. 

But URA says the costs are minimal compared to the producers’ margins and that closures typically affect non-compliant businesses rather than legitimate ones. 

As Uganda continues to refine and expand its digital tracking capabilities, DTS stands as a testament to the potential of leveraging technology to enhance governmental functions, foster a more compliant business environment, and ensure economic stability.