The government has introduced an 11 per cent excise tax on common Pall Mall cigarettes on the local market contrary to the general perception that the 2011- 2012 National Budget had no tax increases. Local tobacco companies and smokers will now feel the pinch as the new taxes will push cigarette prices up.

The latest increment, contained in government’s proposed Excise Tariff (Amendment) Bill, dated June 28, will increase the tax burden on tobacco to nearly 60 per cent, according to local tobacco companies. With the new tax, the cost of low segment cigarettes will likely increase from Shs75 to Shs100 per stick while premium brand will rise from Shs200 to Shs250 per stick according to tobacco industry players.

But even before Parliament discusses the proposed Bill, the Uganda Revenue Authority has already been mandated to start tax collection starting July 1. Mr Lawrence Kiiza, a director in the Ministry of Finance, admitted government had increased the taxes but argued that the cigarette rate had not been revised for more than five years. “We also want to be in line with other states within the East African Community. We have to remain at par with them to be able to balance up and to avoid smuggling. But the excise duty was adjusted by Shs2,000,” he said.

Asked why they never waited for parliamentary approval, Mr Kiiza said the provisional collection order is guaranteed at the beginning of the financial year. Local players yesterday warned that with a tax burden averaging at 43 per cent, cigarette products are already one of the highly taxed products in Uganda, but which carries the lowest excise duty rates in East Africa.

Firms not amused
The five key tobacco companies to be affected are BAT Uganda, Continental Tobacco Uganda, Leaf Tobacco and Commodities, Uganda Tobacco Services and Premier Tobacco. In the June 8 Budget speech, Finance Minister Maria Kiwanuka proposed excise changes in respect of sugar and kerosene. It is still unclear why there has been a sudden change of heart to “sneak” cigarettes into the Excise Tariff Bill 2011. Some sources, however, told Daily Monitor that after budget reading, anti-tobacco NGOs and the World Health Organisation pressured the government to raise taxes on cigarettes up to 70 per cent as a way of discouraging the practice.

Reacting to the development, the leading local tobacco company, BAT Uganda, said it was neither contacted nor consulted on the matter. “We support over 30,000 farmers and spend over Shs20b a year on farmer support in West Nile, Bunyoro-Mubende, North Kigezi and Middle North,” said BAT Uganda’s Finance Director, Mr Paul Sine. “It is very disappointing that a company that provides 80 per cent of tobacco taxes worth over Shs50b has not been consulted by the ministry on such a huge increment.” The tobacco industry argues that making cigarettes unaffordable to a majority of smokers only creates an opportunity for illicit trade to thrive.

Lost revenue
Statistics show that out of the two billion sticks of cigarettes consumed in Uganda, at least 400 million are illicit sticks imported from mainly Kenya, Southern Sudan and DR Congo. Because of cigarette smuggling, the government loses revenue worth Shs22 billion annually.