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Stanbic Bank
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Stanbic Bank

Nile Breweries shuts down Chibuku beer production over taxes

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Ugandans who had hope that Nile Breweries Limited (NBL) would backtrack on the decision they took on July 1, 2018 to stop brewering Chibuku alcoholic drink will have to turn to other alternatives as the Communications Director Onapito Okomoloit has said.

Onapito says unfavourable tax of 30 per cent cannot allow them to continue producing the drink that was meant to draw people from local illicit traditional brews.

In early 2017, NBL commissioned Shs14 billion plant in Jinja to bottle Chibuku, a product similar to traditional ‘malwa’ that is produced through unhygienic processes but consumed by many people as it is cheap compared to opaque beers.

Chibuku was being brewed from finest whole maize, enriched with sorghum malt, to provide a highly nutritious and satisfying beer. Rich in taste, full of flavour, Chibuku was delivering a taste of tradition in a modern world. The raw matertials were being acquired locally.

Brewers say Chibuku beer had developed its own highly unique character. The taste varies from sweet to sour depending on age, the conditions it is exposed to and the maturity stage of the beer. An ‘acquired’ taste and character for those who have not been exposed to the product.

The drink was a partnership of NBL with the government as the company pioneered the use of local raw materials (LRM) in commercial brewing of clear beer in Uganda – the LEAP.

This initiative is aimed to offer low income consumers affordable, hygienic clear beer made from LRM, as an alternative to home brews and informal alcohol. But also it was to give market to farmers producing sorghum and maize in areas of Teso and Sebei.

Chibuku had within a short time proved a success, earning government billions of shillings in value added tax (VAT), but not paying excise tax, as agreed by the Ministry of Finance in the initial stages of the process to produce the drink. The consumption of Chibuku had risen from 100,000 liters in March 2017 to 1.4 million litres per month.

But now the closure of Chibuku production means government will lose Shs5 billion annually in value added tax (VAT) alone, which it had been getting even without excise duty of 30 per cent. The Uganda Revenue Authority (URA) was demanding the company 30 per cent excise duty in arrears yet the company says the ministry had said it should not pay the tax until a certain period when consumption volumes would be considered for taxing.

NBL had been purchasing average 3.6 million Kgs of maize annually locally to make Chibuku. For instance, over 1,000 farmers supplying maize for Chibuku have lost market and 6,000 direct and indirect jobs linked to Chibuku have been lost.

NBL was offering a guaranteed market and price for sorghum but now with the closure of the plant that was producing Chibuku, farmers will be the most hit.

The Excise Amendment Act 2018, Finance Ministry, introduced an excise rate for “opaque beer”, of 30 per cent of ex-factory price or Shs650 per litre. This tagged the excise tax for opaque beers like Chibuku at the same rate with clear beer brands such as Eagle, Senator and Engule.

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