Summary:
- URA and manufacturers are set to rethink the implementation of the Digital Tax Stamp (DTS) strategy to eliminate loopholes.
The Uganda Revenue Authority (URA) and manufacturers are set to rethink the implementation of the Digital Tax Stamp (DTS) strategy to eliminate loopholes.
Introduced in 2019, the stamps are a component of the broader tax administration measure of Digital Tax Solutions, a track and trace platform that shares production and importation data of excisable products immediately to URA.
The stamp is always affixed to a product. The measure was primarily introduced to increase excise duty revenue collections and curb illicit trading in such items, however, a report by the Private Sector Foundation of Uganda-PSFU pointed out strong areas of concern which have to be addressed with immediate effect.
According to the report, DTS has increased the cost of doing business in the manufacturing sector through acquiring the system infrastructure as well as operational costs.
“The implementation of DTS led to a significant increase in the cost of operations, the costs of procurement of the hardware and software infrastructure required for DTS compliance. These upfront investments have posed significant challenges for manufacturers particularly Small Medium Enterprises (SMEs) with limited capital,” reads part of the report.
It further states that overall there has been an additional increase in operational expenses incurred equivalent to an average of 16 percent of their Local Excise Duty obligations; some manufacturers have closed their businesses.
It recommends a revisit of the legislation to offset DTS costs against excise duty payable and introduce process loss provisions, as well as making DTS zero-rated for VAT. In addition, it also calls for adherence to international guidelines and standards to revitalize the Stamp system for improved revenue collections.
Andrew Kilonzo, the Managing Director of Uganda Breweries Limited on behalf of the manufacturers, notes that they received the system with excitement, but it has proved to have a lot of challenges, especially the increase in operational costs, starting with a significant amount of buying the required equipment, the recurring purchase of the stamps which amounts to billions now. He adds that UBL annually spends up to 20 billion shillings on DTS alone.
Kilonzo calls for engagements with the government and URA to find solutions to the issues in the report, put up measures to support compliance, as well as lowering the barrier of adoption, and removal of prohibitive costs and procedures. He adds that there is a need to find ways of improving efficiency in the system application, up to at least 95 percent, which is affecting production. “It is not comfortable to challenge government policies and programs, but these are supposed to speak to us,” he stated.
In response, John Musinguzi, the URA Commissioner-General, affirmed that the government is pro-manufacturing, and together with all its agencies URA inclusive, they are ready to support the sector growth in all ways possible, starting with the DTS which seems to have become a disincentive to manufacturers.
He adds that URA will sit with the manufacturers to scrutinize the failures in the system especially in illicit trade, where need be, changes have to be made because interest is more in the results, not the technology itself.
About the stamp prices, Musinguzi called for further discussions, because the problem might be with the number of technology users, referring to the terms of the agreement in the MoU between URA and the service provider SCIPA.
“The report is very important in causing us to engage and discuss but there is a lot of work ahead of us, but I want to promise you that as URA we are committed to having this candid discussion and agree on the best way forward” he stated.
During the discussion, the acting Commissioner of Internal Trade for the Ministry of Trade, Zackey Kalega highlighted the Government’s efforts to manage illicit trade. “We are trying to operationalize a committee on illicit trade and we are working very closely with some of the companies I see here: BAT, UBL, and others.”
As Uganda continues to navigate the complexities of modernizing its tax system, the role of DTS remains crucial. The focus is now on enhancing compliance across sectors, including Kombucha products, ensuring that the benefits of DTS can be fully realized and thereby supporting Uganda’s broader economic goals.
