Overview:
Trade fraud and tax leaks in the steel industry drain 99.7 billion shillings from Uganda each year, undermining efforts to reduce public debt.
KAMPALA, Uganda — Uganda’s steel industry is grappling with a revenue crisis as trade misinvoicing and a sharp rise in tax exemptions drain billions of shillings from the national treasury.
While the sector remains a top tax contributor, the government loses an estimated 99.7 billion shillings annually to trade misinvoicing. This practice involves the intentional manipulation of reported values for iron and steel products to bypass tariffs or facilitate capital flight.
The revenue loss comes as Uganda’s total tax expenditure — the revenue foregone through incentives and exemptions — jumped 46% between 2019 and last year. In the 2023-24 financial year alone, the government waived 3.609 trillion shillings in taxes, an amount equal to 13% of total tax collections.
The steel industry has been a major beneficiary of these policies. Last year, 21 steel companies received exemptions through duty remissions and the suspension of the East African Community Common External Tariff. By February, the government had foregone 202.6 billion shillings in duty remissions for the steel sector alone.
Allan Ssenyondwa, policy and advocacy manager for the Uganda Manufacturers’ Association, said these tools are necessary to protect infant industries. However, trade analysts warn that inadequate supervision has created a “crossroads” for the industry where incentives and revenue mobilization collide.
“Governments eager to accelerate industrial output may tolerate or inadequately supervise duty remission in the belief that short-term revenue losses will yield long-term industrial dividends,” trade policy analyst Mark Mutumba said.
The fiscal pressure is mounting as Uganda’s public debt reached 119.4 trillion shillings in September. Experts argue that the nearly 100 billion shillings lost annually to steel trade fraud could instead be used to bridge the national budget deficit.
External factors are also squeezing the local market. Tanzania recently introduced a 5% industrial development levy on imported steel from its neighbors, leading Ugandan manufacturers to call for reciprocal duties. Meanwhile, firms like MMI Steel have reported an influx of underpriced iron sheets from Kenya, which they say distorts local competition.
To curb the crisis, experts are calling for a reform of the incentive framework. Mutumba proposed replacing the current one-year approval cycle for tax breaks with multi-year agreements tied to strict performance indicators, such as job creation and verifiable value addition.