Traders call off strike, for now, after government agrees to additional demands

Manufacturers claim EFRIS is a good initiative but poorly implemented

Kampala, Uganda | THE INDEPENDENT | Thousands of traders, who had shut their shops in Kampala and other towns, called off their strike on April 20, claiming a tentative victory following a meeting with President Yoweri Museveni.

President Museveni agreed to delve deeper into the issues surrounding the Electronic Fiscal Receipting and Invoicing Solution (EFRIS) and to suspend related penalties for one month while further consultations are carried out.

The announcement marked the end, for now, of protests that erupted in opposition to the Uganda Revenue Authority’s (URA) push towards digital tax administration, aimed at enhancing tax collection.

URA executives argued that EFRIS, initially rolled out in 2021 targeting manufacturers and large businesses, is crucial for reducing tax evasion by ensuring accurate transaction records and the alignment of input and output tax, which would bolster the country’s tax-to-GDP ratio.

However, this digital tax measure met strong resistance from traders in Kampala, Jinja, and Masaka, who feared it would jeopardize their businesses, prompting them to close their shops. The finance ministry’s attempt to call upon traders to open shops could not bear fruits.

For that, President Museveni met with 61 trade leaders, including John Kabanda, head of the Federation of Uganda Traders Associations (FUTA), and Dr Thadeus Musoke, the leader of the Kampala City Traders Association (KACITA) on April 19 in Entebbe.

Museveni, on his X handle, said traders should for now continue to meet their usual tax payments while both parties work towards a permanent resolution. “I have asked the traders to give me time to research more and consult the technocrats on all the concerns they raised. I will then meet them all on 7 May 2024, at Kololo to discuss further,” Museveni tweeted.

He also directed URA to halt the issuance and recovery of penalties but emphasized that traders should maintain their regular tax contributions. “It is good they have agreed to open up their businesses as we continue to find solutions to the issues raised,” he added.

Traders concerns

The traders voiced multiple concerns, such as the need to suspend EFRIS and the need to increase the annual turnover threshold for enrollment from Shs150 million to at least Shs1bn as some of the reasons for the protest.

They also argued that the current 18% VAT, applied repeatedly throughout transactions, results in double taxation, diminishing their competitiveness especially relative to Kenya, where the VAT is set at 16%.

Traders have also contested, the import duty rates on textiles and garments, currently standing at 3.0 and 3.5 USD per kilogramme respectively, as very high. They argue that these rates not only inflate business costs but also foster smuggling, leading to numerous uncleared containers at customs.

They also criticize the URA’s inconsistent valuation guidelines for imported and exported goods, which they say impede effective business planning and put them at a disadvantage compared to their regional peers.

In addition, traders also raised issues about the alleged unprofessional behaviour of URA enforcement officers and the steep interest rates, ranging from 17-36%, imposed on local businesses.

These conditions, traders claim, contrast with the more favourable terms offered to foreign competitors, notably Chinese companies, who benefit from lower credit rates and additional business incentives.

EFRIS is a good initiative but poorly implemented

However, the Uganda Manufacturers Association has offered support for the EFRIS but faults government agencies on aspects of its implementation.

Speaking to the media on April.19, UMA Chairman, Deo Kayemba, said while the system is vital to ensure proper tax administration, the taxpayers do not understand it, nor do they even understand the tax regime, a situation that should have called for proper sensitization of the masses before implementation.

He said the installation of the equipment to process the electronic invoices and receipts is supposed to be a responsibility of URA, and that traders who have installed them should have some compensation.

He also said the penalty of Shs 6 million to defaulting traders is unfair and that the implantation should have been in a phased way to ensure that the system is adopted steadily and smoothly.

The manufacturers also suggested that VAT should be payable by businesses that are at least US$50,000 (about Shs 191 million) in capitalization, which is also the amount that is required for a local investor to get an investment license.

Kayemba called on the authorities to continue dialoguing with the aggrieved traders to find solutions to all the outstanding issues that have led to the disruption of the trade order in the country. These also include complaints about manufacturers that have established retail outlets for their products, which, he agrees, is a real example of unfair trade competition.

Despite the enactment of the Competition Act 2023, and the presidential assent to it, it has not been implemented, yet it has responses to most of the issues being raised by the traders.

Kayemba says a committee should be set up and regulations issued to operationalize this law as soon as possible. Regarding the taxation of garments, UMA said it was opposed to varying the specific duty rates applicable to some tariff lines in the textile trade. He also said duties on imported finished textile products are necessary to promote the local industry by ensuring less competition from the imports.

Giving praise to the tax amendment which was first introduced in 2021, Kayemba said, its implementation has led to increased investment in the local textile industry. On the broader implications of these trade disputes, President Museveni urged traders to consider the national interest.

“Traders should answer the question: Do we want to build our country, Uganda, or other countries by trading in goods produced by them?” he questioned. “Must we continue to cause a haemorrhage of the little that we have made through agriculture and other sectors by sending our money outside? Uganda should not be a supermarket for other countries.”