Inside a small, dimly lit room in Uganda’s capital, unused bales of fabric stacked high behind Richard Wambuga are bright with color. But they are a testimony of the setbacks his tailoring business has come up against since the beginning of the pandemic.
First, various restrictions put in place by the government in June 2020 to curb the spread of the coronavirus robbed him of his clientele. Fewer people were buying new clothes, including school children who had shifted to virtual learning and no longer needed school uniforms.
Uganda’s tax reforms are dipping into the profits of local businesses
Wambuga, who has imported textiles from France, Italy, and China for the last five years, hoped his business would recover once the government eased restrictions. Then in July 2021, he was hit with yet another hurdle. The government implemented new tax reforms as part of Uganda’s economic plan to reduce imports and boost local production, in part to create jobs.
That had a counter effect on traders who rely on imports, including textile importers like Wambuga, who now have to pay on many textiles a duty rate of 35%—an increase from 25%—or a charge of $3 to $3.30 per kilogram (2.2 pounds), whichever is higher.
The traders—who are part of Uganda’s private sector that contributes 75% of the country’s gross domestic product—have decried these tax measures, calling them counterproductive as they hurt small businesses, which have yet to recover from the economic aftershocks of the coronavirus pandemic.
“Charges are almost twice what we used to pay,” Wambuga says.
The tax reforms complement a series of other economic policies the Ugandan government has implemented to strengthen the country’s economic potential by bolstering local industries. They include the Buy Uganda, Build Uganda policy, a legal framework that outlines strategies to build Uganda’s economy through buying and selling local goods and services.
These initiatives are intended to reduce the country’s wide trade deficit. Despite gains, Uganda imports twice as much as it exports. In 2020, imports were valued at $8.5 billion compared to $4.1 billion in exports, according to the International Monetary Fund.
The move to boost local manufacturing isn’t a bad idea, says Issa Ssekito, spokesperson for the Kampala City Traders Association, but it shouldn’t come at the expense of import traders. Instead, he says, the government could have invested in the country’s strong economic areas, such as agriculture, which employs about 68% of the population, according to government data.
“If Uganda wants to grow her economy based on industrialization, they should focus on [where] God gave us an advantage,” he says, pointing to fisheries, in addition to agricultural industries.
Taxes on imports in Uganda are sometimes arbitrary
The tax reforms have made a bad situation worse, Ssekito says, as import traders were already struggling with arbitrary and inconsistent tax increases at different border points. “Every other day, they tend to rise this, cut this, purposely so the government can grow the local industry,” he says. “They raise rates to frustrate importers.”
As a signatory to the World Trade Organization, which deals with trade regulations between countries, Uganda should ensure that import traders are taxed based on the value on their invoice, he says. He considers the new tax measures inconsistent with this requirement.
But James Makula Mukasa, senior commercial officer at the Ministry of Trade, Industry and Cooperatives, sees this as a necessary bump on the road toward protecting locally manufactured goods. “Before a woman can deliver, she has to go through labor pains,” he says. “We use tariffs to regulate imports. If we don’t, we shall remain a supermarket of imported products.”
Increasing taxes to facilitate the growth of local industries has worked in the past, Mukasa says, citing a 2017 increase from 2% to 12% in verification fees on imported pharmaceuticals that allowed the local pharmaceutical industry to thrive.
But pushback from traders on the tax reforms has prompted the government to respond. In August 2021, the Uganda Revenue Authority waived the higher tax for garments and fabrics that can’t be locally sourced, which accounts for 90% of imported textiles and garments.
The suspension will remain until the Ministry of Trade, Industry and Cooperatives offers guidance, says Ibrahim Bbosa, assistant commissioner of public and corporate affairs for the revenue authority, the government’s collection agency. He didn’t comment on whether the agency might waive reforms affecting other import traders.
Bbosa denies the allegation that import taxes have been inconsistent at different border points or that they have been increased arbitrarily, adding that Uganda follows internationally accepted valuation methods.
