Timing of digital tax stamps levy is wrong

What you need to know:

  • The issue: Digital tax stamp
  • Our view: Unless the Covid-19 crisis is resolved, the implementation of digital tax stamps will remain a burden to manufacturers and consumers who will have to foot the costs.

Manufacturers are still dusting off the effects of the Covid-19 pandemic, which almost brought their businesses to a standstill.
It is now painful to hear that prices of beverages as well as from the alcohol industry have gone up due to government’s implementation of the digital tax stamps.

Whereas government has been paying the cost of implementing digital tax stamps for about a year, now the same will be incurred by manufacturers. Nile Breweries, for instance, has increased the cost of its beer products by between 5 and 8 per cent in response to their requirement to cover the cost of digital tax stamps.

All this is happening at a time when consumers are still holding onto cash and not spending as much as they did before the Covid-19 crisis. Manufacturing companies’ cashflow has reduced by 75 per cent due to the Covid-19 pandemic.

Therefore, government should now focus on stimulating production through significantly reducing production costs in the manufacturing sector in order to create more jobs that will boost cash flow while taking in those who are now jobless as a result of layoffs.
During the 8th Economic Forum by Institute of Certified Public Accountants of Uganda yesterday, Mr Daniel Birungi, the executive director of Uganda Manufacturers Association, urged government to consider measures that can help the economy recover from the devastating effects of the pandemic.

Now is the wrong time to implement any new tax and administrative measure that could only worsen the situation. Implementing digital tax stamps is already increasing manufacturers’ cost of doing business. The customer, who is already cash strapped, will now have to incur more for a beer, for instance, now that prices have gone up.
Therefore, this pandemic has taught us that policy should not be rigid to the extent of locking out new investments. It would rather be dynamic and able to adjust to emerging circumstances.

To stabilise demand and supply, manufacturing companies must ensure their products and services serve the preferences of customers, whose consumption patterns have changed to accommodate their low purchasing power.
Government can also support manufacturing businesses to capitalise on the new opportunities. Reducing barriers to trade across the region will enable manufacturers to scale up and become more cost-competitive.

Going forward, manufacturers should also plan dynamically, considering that the duration of the pandemic is unclear.
Implementing digital tax stamps should be deferred until manufacturers recover from the Covid-19 stress. Unless the Covid-19 crisis is resolved, the implementation of digital tax stamps will remain a burden to manufacturers and consumers who will have to foot the costs.

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