The Government of Uganda has reaffirmed its unwavering commitment to the Digital Tax Stamps (DTS) program, underscoring its importance in enhancing tax compliance, protecting legitimate businesses, and safeguarding public health.
Launched in 2019, the DTS initiative has become a pivotal tool in the fight against counterfeit goods, illicit trade, and tax evasion, particularly in sectors such as tobacco. The Ministry of Finance, through Principal Economist Isaac Arinaitwe, has emphasized that the program plays a crucial role in improving tax transparency and efficiency, which in turn strengthens the economy and ensures fair business practices.
Isaac Arinaitwe, speaking on behalf of the Ministry of Finance, outlined the multifaceted benefits of the Digital Tax Stamps program. According to Arinaitwe, the DTS system has significantly improved the accuracy and timeliness of the declaration and assessment of Value Added Tax (VAT) and excise duty. This advancement is largely due to the system’s ability to monitor and track the production and sale of taxable goods, ensuring that all transactions are properly taxed.
“Deliberate enforcement activities and stamp monitoring have fostered a culture of compliance among taxpayers, allowing the government to better track goods entering the market,” Arinaitwe said. This increased accountability, he added, ensures that businesses adhere to legal tax obligations, while also curbing the sale of counterfeit or unlicensed products, which often evade taxation.
By implementing DTS, Uganda has taken significant steps towards reducing the prevalence of counterfeit goods in the market. This initiative not only safeguards the country’s revenue but also contributes to improving public health and protecting consumers from substandard products. Arinaitwe highlighted that the DTS system is vital for tackling the illicit trade in counterfeit and unlicensed goods, which can pose significant health risks and undermine the integrity of legitimate businesses.
Addressing the Rise in Illicit Cigarette Trade
One of the most concerning sectors affected by illicit trade is tobacco. In a recent meeting between Uganda Revenue Authority (URA) officials and representatives from British American Tobacco (BAT), the two parties discussed strategies to combat the growing issue of illicit cigarette trade in the East African region. The meeting, held at the URA headquarters in Nakawa, revealed alarming statistics that pointed to a significant rise in illegal tobacco sales in Uganda.
BAT’s Achola highlighted that the incidence of illicit cigarette trade in Uganda had reached 34.1% in the second quarter of 2023, up from just 15.8% in the final quarter of 2019. This means that nearly one out of every three cigarettes consumed in Uganda is either not paying the required duties or is sold through illegal channels. The sharp increase in illicit trade is a cause for concern, with implications not only for public health but also for government revenue.
Achola stressed that this growing trade in illicit cigarettes has serious consequences, undermining the tobacco industry and the government’s tax collection efforts. “We are seeing a significant loss in revenue due to smuggling and counterfeit goods,” he said, calling for immediate and coordinated action from all stakeholders to combat the vice.
Strategic Solutions to Curb Illicit Cigarette Trade.
During the meeting, BAT proposed a series of measures to curb the illicit cigarette trade, many of which align with the government’s ongoing efforts to improve tax compliance and ensure the integrity of the supply chain.
Among the proposals were stricter enforcement of labelling requirements, the implementation of the DTS program, and enhanced control over manufacturing and distribution channels.
BAT also recommended the public destruction of all seized counterfeit cigarettes as a deterrent to illegal traders.
This proposal aims to reduce the market availability of illicit cigarettes while sending a strong message that smuggling and counterfeiting will not be tolerated.
Additionally, BAT urged the government to increase vigilance and strengthen its partnerships with the private sector to clamp down on illegal trading activities.
The URA’s Commissioner General, John R. Musinguzi, expressed his concern over the growing issue of revenue leakage caused by the illicit trade in cigarettes. He acknowledged the efforts of BAT to address the issue and pledged URA’s commitment to curbing smuggling activities. “We are deeply concerned about revenue leakage, and it has become clear that the rise in cigarette smuggling is negatively impacting both the tobacco industry and our nation’s finances,” Musinguzi stated.
URA’s Plans to Strengthen Enforcement
In response to the escalating problem, URA has outlined a series of enforcement measures aimed at curbing the illicit cigarette trade. Godson Mwesigye, the Assistant Commissioner of Enforcement at URA, confirmed that the authority would request that manufacturers of cigarettes in Uganda provide batch numbers for their products. This measure would allow URA to track and trace cigarette products more effectively, ensuring that they comply with the established tax rules and regulations.
Additionally, URA will continue to roll out the DTS system as part of its broader strategy to combat illegal trade and enhance tax compliance. The “track and trace” solution offered by the DTS program is designed to monitor the movement of cigarettes from production to sale, making it much harder for illegal products to enter the market without detection.
A Collaborative Effort
Both the government and private sector stakeholders agree that addressing the illicit cigarette trade requires a collaborative approach. The government has pledged to continue its support for the Digital Tax Stamps program and other measures designed to increase tax compliance and reduce revenue leakage. Meanwhile, BAT and other industry players are committed to working closely with URA to implement solutions that will help reduce the impact of counterfeit goods and tax evasion.
The growing challenge of illicit trade highlights the importance of ongoing innovation in tax administration and enforcement. By leveraging technology like Digital Tax Stamps, Uganda is taking crucial steps towards creating a more transparent and accountable tax system. This will not only safeguard government revenue but also protect consumers and legitimate businesses from the negative effects of counterfeiting and illegal trade.
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