The tough anti-smoking regulations instituted by the government of Uganda have led to an increase in smuggling of tobacco products and reduced revenues, industry players have said.
British American Tobacco (BAT) Uganda, in their annual financial statement for June 2020/June 2021 released last week, said the implementation of Tobacco Control Regulations, 2019, have increased tax evasion and violation of health warnings.
“Following the implementation of Tobacco Control Regulations, 2019 (TCR), there was a sustained increase in the incidence of illicit trade in tax-evaded cigarettes, with many of these cigarettes displaying irregular graphic health warnings or no such warnings at all. This resulted in a material reduction in our sales volumes, revenues and profitability,” BAT said.
BAT added that the COVID-19 restrictions also adversely impacted the business due to and the general decline of consumer disposable incomes.
“Tide in tax evaded cigarettes, estimated at 28% of the market, continued to negatively impact the industry revenues and deny the government an estimated Shs38 billion in much needed revenue annually,” the statement adds.
The government has steadily increased taxes on the Industry as a way of ensuring that Ugandans reduce tobacco consumption due to its adverse health effects.
URA also introduced the digital tax stamp system to control smuggling.
However, BAT says packaging and labelling regulations are being violated by unscrupulous players.
“We appreciate the Uganda Revenue Authority’s efforts and continue to urge the relevant authorities to enforce the packaging and labelling requirements of the Tobacco Control Act, 2015 (TCA) and TCR, to address the growth of illicit cigarettes in the market,” BAT added.
Gross revenue reduced by 41% to Shs45.2 billion, driven by a decline in sales volumes attributed to the challenging trading environment. Excise Duty and Value Added Tax (VAT) decreased by 41% to Shs23.3 billion due to the lower sales volume.
Consequently, net revenue declined by 40% to Shs21.9 billion.
Profit before tax decreased by 50 per cent to Shs49 billion shillings, reflecting the drop in net revenue offset by cost saving measures. Taxes in the form of Excise Duty, VAT and Income Tax reduced by 41% to Shs24.8 billion.
Some of the measures provided for in the Tobacco Control Act and the Tobacco Control Regulations include100% smoke-free public places and pictorial health warnings, covering 65% of the pack to inform the public of the dangers of tobacco.
Tobacco products also carry taxes of more than 40% of the retail price, while there is also a ban on the sale of cigarettes to and by persons less than 21 years old. Others are prohibition of smoking in or near public places, as well as a ban on tobacco advertising, promotion and sponsorship.
The laws also bar companies from interfering with government regulation. The 2020 Global Tobacco Industry Interference Index by the STOP initiative ranked Uganda as the country with the 3rd least tobacco industry interference out of the 57 countries surveyed.