The Committee on Finance, Planning and Economic Development has released a report on Excise Duty (Amendment) Bill, 2022 after it was referred for scrutiny in March 2022.

The Bill was released on Wednesday aiming at amending the Excise Duty Act, 2014, to provide for the definition of fruit juice, un-denatured spirits and vegetable juice. In terms of opaque beer, fermented beverages and plastics, the bill seeks to provide for an incentive regime for citizen and foreign investors whose investment capital is USD 5 million and USD 35 million respectively.

Stability of the Excise Tax Regime

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The committee observed that there is a need to enable proper planning and implementation of investment plans by enterprises through a predictable and stable tax regime. Any new tax measure should therefore be thoroughly scrutinized to assess its impact on macro-economic stability and competitiveness of the sector in line with National Development Plan three and the policy of export promotion and import substitution.

The Mps however recommended that the Government develops an Excise Duty regime spanning for two to three years to facilitate proper planning.

The Excise Duty on opaque beer

The Committee observed that there is need to reduce excise duty on opaque beer from 20 per cent or Shs 230 per litre to 12 per cent or Shs 150 per litre.

“The Excise Duty Act 2020 excluded alcoholic Kombucha drinks among items paying a 12 per cent or Shs 150 tax regime. As with opaque beer, kombucha drinks are locally sourced and manufactured. It therefore serves the segment of the population that would in the alternative resort to illicit trade, or untaxed and non-taxable products such as local brew, tonto, ajono, mulamba, malwa, and kwete,” MPs observed.

“Kombucha is an applied term to mean fermented sugary tea solution with a combination of yeast and bacteria,” manufacturers told the MPs.

 MPs were further informed that the kombucha product contains two categories; Alcoholic kombucha and non-alcoholic kombucha. The Committee learnt that both alcoholic and non-alcoholic kombuchas undergo fermentation processes, although they differ on the number of days spent in fermentation.

“The Excise Duty (Amendment) Bill, 2022 is amended to include non-alcoholic kombucha under the category of products in a reduced tax regime of 12 per cent or Shs 150 whichever is higher. However, due to the high fermentable nature of kombucha, only 2 per cent of kombucha products remain non-alcoholic as they would require long-term costs of refrigeration to maintain them in a non-alcoholic state,” the Committee stated.

The Committee therefore recommended that there be reduction of the Excise Duty on opaque beer to 10 per cent or Shs 100 per litre whichever is higher.

The Committee further recommended that the Excise Duty on alcoholic Kombucha drinks be reduced to 12 per cent or Shs 150 tax regime. Whilst this will encourage more manufactures of the alcoholic kombucha to become tax compliant and join the formal sector thereby expanding the tax base.

Digital Tax Stamps

The Committee further noted that Digital Tax Stamps (DTS) increases the costs of exports as companies are forced to change branding designs just to incorporate the DTS, especially for export products.

The MPs noted that on average, tax accounts for between 45 per cent and 55 per cent of the price of a final product. The Committee further noted that in particular, the Excise Duty regime is reviewed on an annual basis and yet investment is planned for a period of 3-5 years.

The committee recommended that Digital Tax Stamp (DTS) payments be restructured to consider the increased Excise Duty collections, to ensure the government and country benefits commensurately from this solution. More so DTS be applied only to tax-payers who have proven to be continuously under-declaring the right excise duty payable.

The Committee further observed the need to promote local content through the development of a separate tier/threshold for new innovative products which utilize local raw materials, mainly in the agriculture industry. This should consider products at the introduction stage to enable them to benefit from the sunk costs (research) since targeting them for tax discourages innovations and reduces the expected revenue development through the value chain – especially supply chains. 

The Committee recommended that a separate excise duty threshold be developed for innovative products that promote the utilization of local raw materials, mainly in the agriculture industry.

 Definition of fruit juice

The Committee observed that “fruit juice” has been redefined in the Bill to mean unfermented liquid extracted from the edible part of a fresh fruit whether the extracted liquid is diluted or not.

The Committee was informed that the proposed re-definition of fruit juice goes against the conventional definition of juice, as provided for in the UNBS Standards that are aligned with international definitions and classifications of juice

“Re-defining juice in the manner proposed in the Amendments will bring raw materials (juice pulp and puree) under Excise Duty levies and also lead to double taxation because fruit puree and pulp will attract Excise Duty as will the final products they are used to manufacture; the juice itself,” Committee justified.

Furthermore, instating excise duty on pulp will mean that the cost will be extended to farmers in form of reduction in prices. The rationale is to exclude puree for industrial use, but maintain the tax on ready-to-drink juice, whether diluted or not, and to avoid double duty on both the puree and the final fruit juice

The Committee however recommended that the bill be amended to define “fruit juice” as, “unfermented liquid extracted from the edible part of a fresh fruit whether the extracted liquid is diluted or not but does not include fruit Duree for industrial use that is not ready for final consumption.” This redefinition will ensure that there is no double taxation of both the fruit pulp- raw material and the fruit juice itself.

Excise Duty on Plastics

The Committee also observed that the Excise Duty Amendment Bill 2022 seeks to increase Excise Duty on bags of polymers of ethylene and other plastics to 40 per cent or 4000, whichever is higher. This amendment is meant to ensure that all plastic product manufacturers and importers would directly contribute to the government to ensure a clean and healthy environment and ensure the 3 R’s that is, Reduce, Reuse and Recycle, which are international practices for plastic products. This tax has been able to contribute about Shs 60bn towards the government consolidated fund.

The Committee was informed by Uganda Plastic Manufacturers and Recyclers Association that although the above was reached by negotiation, it has still proved too high and led to the closure of some of their member factories. The Committee therefore revealed that from the above, that the high Excise Duty on plastics is not justified and recommended that the act be deleted.