High tax costs, Alcohol Bill deflate beer sector

The push for fresh measures to cut high tax compliance costs for excisable goods has hit a dead end with the government maintaining the unpopular digital tracking solution to support its domestic revenue mobilisation strategy.

Mr Moses Kagwa, the acting director of economic affairs in the Ministry of Finance, Planning and Economic Development, said government would not dump the digital tax stamps for the blockchain technology.

“The country does not have a law yet to help in regulation of blockchain technology,” Mr Kagwa told Saturday Monitor on March 21, further adding that the technology is still under study.

We also understand that big early gains from the Digital Tax Stamp (DTS) are further holding the government back from taking a gamble with blockchain technology. Data from the Finance ministry shows an increasing number of firms using digital stamps, which had increased by 78 percent from 520 to 925 and by 546.8 percent from the baseline.

Monitor has also learnt that the earnings of manufacturers continue taking a hit, with several reporting negative effects of the DTS. These negative effects have not only impacted their sales but also translated into a big hole in the government coffers.

For instance, Nile Breweries Limited (NBL) reports forking out Shs1.5 billion ($400,000) and an additional loss of Shs9.7 billion ($2.5 million) of net sales, attributed to supply loss due to DTS equipment downtime in 2021.

Equally soft drinks makers are also complaining about the revenues they continue forking out to pay a private digital stamps services provider that was singlehandedly sourced. This puts doubt to the transparency of the transaction. Investing such a huge amount in the implementation also means manufacturers are locking up huge amounts of money in DTS technology albeit reaping less benefits for their businesses.

“Allow alternative technological solutions to DTS like the blockchain technology, which is cheaper and a more secure platform which allows visibility to the companies paying for the tax stamp, allowing for accountability,” a presentation on DTS that Adu Rando, a country director of Nile Breweries Limited, made to Uganda Revenue Authority Officials and Parliamentary Finance Committee that visited the brewers plant in Jinja on October 2, 2023, states.

Beer costs remain flat
Despite the high costs, Onapito Ekomoloit, the board chairperson of Nile Breweries Limited, said Uganda’s beer prices have remained stable largely due to brewers in the country adopting prudent cost management measures.

“But of course with strain,” Ekomoloit told Saturday Monitor. 

The recommended retail prices for Uganda Breweries 500ml bottled beer brands namely Bell Lager, Pilsner, Tusker and Senator is at $0.82 on average while those of Nile Breweries Limited or NBL brands— Eagle, Club Pilsner, Nile Special and Stout—parked in 500ml bottles cost $0.68.

Besides, the brewers’ deliberate shift to sourcing more than 80 percent of their inputs—especially barley, wheat, sorghum, and other grains—has also helped keep the prices low. The move has helped hedge the industry from supply shocks and inflation.

For instance, NBL is one of the biggest users of locally-grown raw materials such as barley, sorghum, maize and cassava to produce beer. According to the brewer, at least $40m and about $48m is spent on local suppliers of raw materials.

Non-tariff barriers
The industrial players also point out that Uganda’s beer industry is grappling with “non-tariff barriers like digital tax stamps which deter business growth as they lock in operating costs and interfere with business efficiency.

“Our biggest challenge, currently, is digital tax stamps, which add an unnecessary cost in our operations, with zero tax revenue benefit to the country,” Mr Ekomoloit revealed.

On one hand, the beer manufacturers maintain that while the Ministry of Finance revised the DTS downwards from the highs of Shs55 per stamp to Shs36 a stamp a piece, it remains high when compared to what Tanzania (Shs31) collects. While Kenya collects Shs45, Rwanda does not collect the duty.

East Africa’s member states average cost of the digital stamp is Shs28 while that of Uganda is Shs29.

Other costs incurred, per industrial players, include when the DTS system breaks down. There is always loss of productivity, during reconciliation time production, and productivity is lost. The manufacturer also faces costs of emptying the products post DTS and in between brands.

The DTS system is also problematic, as the system can’t read an already taxed stamped bottle leading to high rejections, quality defects and recalls

A recent study commissioned by the Confederation of Tanzania Industries (CTI) shows the average acquisition cost for the digital print system was approximately $634,000 for beer and $21,567 for soft drinks.

About the bill
The outlook of the industry, however, remains bleak due to the uncertainty created by the proposed 2023 Alcoholic Drinks Control Bill currently before Parliament. The Bill seeks to limit time for drinking beer in bars, the biggest sale points for Uganda’s alcoholic drinks, meaning the industry will be plunged into a sharp fall in sales revenue. 
   
The brewers state that they have previously relied on sales revenue to justify their decision to maintain low prices. While appearing before the House Committee on Health and Trade, currently scrutinising the Bill, the leadership of Private Sector Foundation of Uganda (PSFU)— a private businesses advocacy body—instead asked Parliament to regulate the illicit brews in the country. 
    
According to Dr Julius Byaruhanga, the PSFU director of policy and business development, the Bill does not apply to the sale of native alcohol which presents a risk of increased illicit trade that is already about 65 percent. 
    
The private sector has taken exception to Section 14 of the Bill, which says: “A licensee shall not sell an alcoholic drink or native liquor before 17:00 hours and after 22:00 hours on working days, and 12:00 hours and after 00:00 hours on public holidays and weekends.”

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