What you need to know:
ULS says the coffee agreement should have been entered into with the highest degree of openness and involvement of farmers.
Attorney General Kiryowa Kiwanuka has defended the controversial agreement that the government entered into with Uganda Vinci Coffee Company (UVCC), saying the provisions of the agreement—including the tax breaks and other concessions—had been studied and found to be in compliance with the law.
“Before clearing this agreement in line with my constitutional mandate under Article 119, we studied its provisions and found the agreement to be in compliance with the laws of Uganda,” Mr Kiwanuka wrote in a statement sent to the parliamentary committee on Trade, Tourism and Industry on Friday.
The committee, which wound up investigations into the controversial agreement, is expected to return with a position early next week.
The Attorney General’s statement was in response to questions raised earlier before the parliamentary committee when both Mr Kiwanuka and Finance minister Matia Kasaija made an appearance.
Mr Kiwanuka’s statement also sought to assure coffee farmers that UVCC will pay a premium for quality beans.
“…The agreement stipulates that the company undertakes that it will pay for the priority supply of superior quality coffee beans at a premium price to be determined by the company but in any case, not lower than the price approved by the Relevant Authority for a particular consignment or the prevailing international price for each respective grade of coffee whichever is lower,” the statement reads in part.
The government chief lawyer’s statement comes days after the Uganda Law Society (ULS) told the same parliamentary committee that the agreement is totally unfair to Ugandan farmers as it hands UVCC the “latitude to determine the price of its produce.”
The ULS president, Phoena Wall Nabasa, held that the agreement was shrouded in “a great deal of stealth.”
She added that the agreement should have been entered into with the highest degree of “openness as opposed to the secrecy in which it appears to have been conducted.”
Ms Nabasa, who questioned why farmers were never involved in the negotiations that led to the signing of the agreement, also further argued that there was no evidence that the agreement had been subjected to either Parliament or the Solicitor General, especially given that it creates tax obligations for Ugandans.
“… The Uganda Law Society therefore concludes that the Agreement is illegal and needs to be terminated and the relationship with the company regularised through proper due diligence, due process and proper stakeholder vetting before any further business can proceed,” Ms Nabasa said, adding that there is no evidence that either Uganda Coffee Development Authority or the Ministry of Agriculture were consulted.
The Attorney General (AG) and ULS differed sharply when it came to the incentives and other freebies dished out to UVCC.
The AG argued that Section 12 of the Investment Code Act, which spells out qualification for incentives, states that an investor who engages in a priority area specified in the Act qualifies for incentives. The act lists agro processing as one of the priority areas for investment.
“Considering that the company intends to invest in agro processing, it is qualified to be incentivised by government within the meaning of the Investment Code Act 2019,” Mr Kiwanuka wrote.
He argued that Vince Coffee’s undertaking to invest in agro processing is discerned from the commitment that it makes to set up a coffee processing facility with the capacity to process 60,000 tonnes of Uganda’s green coffee per annum in the Kampala Industrial and Business Park, Namanve.
The AG also justified the tax incentives given to UVCC on grounds that it qualifies for them under Section 21(1)(a) of the Income Tax Act. The section provides that the income of a person carrying on business of processing agricultural goods is exempt from taxes for 10 years from the date of commencement of business.
He said that UVCC also qualified for exemptions for the payment of stamp duty, excise duty, and VAT on grounds that it is a strategic investment involved in agro processing.
Mr Kiwanuka further defended the decision by the government to commit to the payment of taxes on the behalf of the company to bear the cost of all such taxes such as Pay as You Earn, local service tax and withholding tax. He reasoned that this is allowed under the Tax Procedures Code Act.
Difference of opinion
ULS is however critical of the government for what it describes as an agreement that “provides blanket tax exemptions” and one that obliges the government to pay taxes on the behalf of UVCC and interest on loans that the company is to take given that it intends to take a mortgage on land for which it has not paid a premium.
“The intention of tax relief or incentives to investors is premised on the basis that they are committing large sums of money into the economy and will need a period of relief to recover the investments costs and break even,” Ms Wall wrote, adding, “To give such reliefs to a company that intends to mortgage even the assets availed by the government would be presumptuous, irregular, risky and questionable.”
Ms Wall’s statement also took exception with the commitments made by the government to bear the costs of all taxes that UVCC may be exposed to; indemnify the company in case of majeure events and; ring fence coffee pricing and export for the company.
Non tax incentives
Mr Kiwanuka had in his statement defended the decision to provide UVCC with electricity at a subsidised price of US5 cents per unit. He said that this is in line with the government’s policy of promoting manufacturing under import replacement and export promotion strategies. Ms Wall, however, argues that such a move would be illegal under international trade.
“Illegal subsidies and/or overly broad subsidies that provide a huge advantage to a domestic industry are prohibited under international trade. [Subsidised electricity supply] is an overly broad subsidy and could be interpreted as illegal and a distortion of international trade which will lead our coffee exports to being subjected to Trade Remedies and/or even barred from entering certain markets,” she pointed out.
Accusations that the controversial agreement had in effect handed UVCC a monopoly have been rife. The ULS boss repeated the claim on the grounds of the government’s commitment to provide what it termed as a “priority of supply” to UVCC came down to the creation of a monopoly.
“It is also our position that the government is creating an oligopoly over a product it does not own in a free market economy like Uganda,” she argued.
However, Mr Kiryowa Kiwanuka insists that the government has only committed itself to taking reasonable measures to ensure UVCC gets an ample supply of coffee. This, he argues, entails activities such as availing extension services to coffee producers with a view of boosting production and quality controls.