Rampant illicit alcohol trade dents economic gains in Uganda registering US$433m loss in taxes

UGANDA – The Illicit alcohol trade has been rampant across the globe at the expense of the legitimate alcohol manufacturers who contribute not only to the exchequer but also create thousands of job opportunities.

Other than looking at the economic implications of the illicit trade, consumers’ health is at a risk as the illicit market continues to predominantly supply beverages that often lack proper certification from standards agencies.

According to a recently launched report by the Uganda Alcohol Industry Association, between 2017-2021, the value market size of illicit alcoholic drinks in the East African nation, increased at a 18.3% Compound Annual Growth Rate (CAGR) from US$577.8 million in 2017 to US$956.8 million in 2020.

During the period, total consumption of illicit alcohol recorded increased volume growth at a 9.1% CAGR to over 1.5 million hectolitres in 2021, impacted by high inflation rates, low disposable incomes, poverty and a lack of regulation enforcement.

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The report, titled Understanding and Sizing Illicit Alcohol Consumption in Uganda was released from research done by Euromonitor International, a leading independent provider of strategic market research.

Further shedding light on the impact of the rise in illicit alcohol trade, the report found that the Government of Uganda loses approximately UGX 1.6 trillion (US$443m) in unrealized taxes due to evasion of tax by the illicit trade as well as lax enforcement of existing laws that govern the production and sale of Alcohol.

Weak law enforcement promotes illegal alcohol trade

According to the report, current penalties stipulated in the Act are not sufficient in curbing regular or new illicit players in the production, sales and smuggling of illicit alcoholic drinks. 

The punishment imposed and paying of fines are considered worth the risk in illicit trading. Moreover, the inadequate enforcement allows illicit traders to continue operating and distribute their goods across formal and informal channels.

Mr. Onapito Ekomoloit Chairman of Uganda Alcohol Industry Association, said, “The scale of illicit alcohol is often underestimated, making the formal sector an easy target of regulatory bodies; a disproportionate blame for alcohol related harm and the resultant punitive taxation regime.

“Illicit alcohol currently makes up 65% of the total market volume.  That means the rest of the industry players make 35% and yet, we are among the top 10 tax payers in the country due to the heavy taxation imposed on our products.”

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He advocated for a fairer and more balanced approach on equitable taxation of the industry to ensure positive ripple effects across the entire value chain such as support more farmers, invest more in industries and create more employment opportunities across the board.

Onapito commended the government on the Digital Stamp Tax that has seen the importation and sale of illicit spirits reduce substantially in the last one year, but also noted that the Proposed changes under 2021 Amendment of Excise Duty Bill would lead to increase of retail unit prices in spirits, beer and other alcoholic drinks.

“We also request the government to make the digital tax stamps affordable so that it does not be a burden to the businesses despite the advantages it has brought to the industry. Currently, on some products DTS’s contribute more than 4% to the final price which is too high,” he highlighted.

Illicit alcohol trade in the country is undertaken in three levels i.e., home brew that is distilled and sold for consumption, commonly known as Waragi, Illegal import and sale of alcoholic beverages and the use of surrogate alcohol like pharmaceutical alcohol diverted to the alcoholic beverages market.

The products are widely sold directly from private households, which are involved in the production, as well as consumption of these beverages.

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