Business

EXCLUSIVE: Trouble Brewing as Nile Breweries Refuse to Pay Taxes for Chibuku Beer

Chibuku beer sales are subjected to taxes in regional countries minus Uganda

Nile Breweries Limited (NBL), one of the most successful beer companies in Uganda’s history, is in the eye of the storm for refusing to pay taxes for the profitable Chibuku beer brand in the country.

Yet, Chibuku sales are subjected to excise taxes in neighboring countries.

In Kenya and Malawi, Chibuku pays an excise tax rate of 30 percent and 7 percent in the brand’s hometown of South Africa.

In Tanzania and Zambia, Chibuku sales face a 40 percent excise tax rate.

With the possible support of officials at the Ministry of Finance, Chibuku wants to maintain a tax waiver that has been in existence for a staggering five years – a move that has sparked stiff resistance from URA.

Asked what action was being taken by URA in the wake of Chibuku’s perceived non-compliance, the tax body’s Manager Public and Corporate Affairs, Ian Rumanyika said “URA implements the tax provisions as they are and our position is that there is no exemption for Chibuku beer in the excise duty law of Uganda.”

Rumanyika, however, adds, “The taxpayer has gone ahead to exercise their right of appealing against the decision of the Commissioner.”

How it started

In 2012 NBL launched Chibuku, a pan-African brand of opaque sorghum beer for who it described as the “less affluent alcohol consumers” who can’t afford bottled beer and often opt for illicit alcohol.

Chibuku was also promoted as a cheap beer which would help many poor people abandon crude waragi.

Since the launch in Uganda, the brand has enjoyed a zero excise tax regime despite the fact that there is no provision for this waiver in the excise tax law.

Year on Year, officials say, this unfair competitive advantage has allowed the brand gain consumer appreciation mainly driven by price to the detriment of all other taxpaying drinks including water and juice.

They further assert that NBL’s non-payment of taxes has had a “negative impact on revenue collection, revenue loss by taxpaying brands, job security and industry investment.”

Officials told ChimpReports unless the 10th Parliament enforces the collection of excise duty by the Ministry of Finance, government risks a loss of over Shs 100Bn during fiscal year 2018.

Contacted for comment, NBL said they would not discuss with the media a matter before tax arbitration.

“This issue is a subject of a case before the Tax Appeal Tribunal (TAT) and it would be subjudice for any media discussion,” said NBL External Communications Manager, Sumin Namaganda in an email to ChimpReports.

He referred this website to TAT “for details.”

Several questions have been raised in regard to the Chibuku ax waiver.

Why should Chibuku be zero rated only in Uganda, unlike other countries including its country of origin South Africa?

Why should any revenue loss to the treasury be acceptable, especially of a magnitude of Shs 100Bn?

Should one formal beer remain untaxed and be allowed to compete directly with other taxed beers, sodas, juice and water?

Why can’t the appropriate tax be enforced immediately?

Shouldn’t Parliament constitute an investigation on how this exemption was allowed in the first place and how it has remained in place for 5 years?

Understanding the Issue

Fiscal year 2016/2017 was an especially challenging year for the beverages sector, which experienced a significant drop in total volumes due to a number of factors.

Since February 2017, the sector suffered a steeper decline in sales.

Some of the players in the beer industry attribute this to Chibuku which was introduced in a 500ml bottle and sold alongside all bottled beverages – i.e. soda, water, juice and beer.

Chibuku beer (6 percent alcoholic content) is produced out of maize and sorghum procured in Uganda, creating employment opportunities for people.

It is produced, bottled, marketed and sold by Nile Breweries Ltd.

A 500ml bottle of Chibuku sells at a retail price of Shs 1,000, which is the same cost as a 330ml bottle of mineral water.

In short, Chibuku is therefore retailing at a price cheaper than a bottle of water or soda per ml.

Originally, Chibuku was packaged in tetra pack, retailing at Shs 800.

Players in the beer industry argue that the reason Chibuku has been able to retail very cheaply is because for at least 3 years it has enjoyed an unlawful untaxed benefit for excise duty.

Indications from Ministry of Finance are that for Fiscal 2017/2018 it appears this brand will go untaxed yet again; a move URA has expressed commitment to fight.

For the financial year 2017/2018, taxes were increased on all beverages including water, packed juice and beer and yet this brand remains untaxed.

Below is a table that indicates the approved/legal excise duty bands for alcoholic beverages (Beer) in line with Excise duty (Amendment) Act passed by Parliament for Fiscal 2017/2018.

(a) Malt beer 60% or shs.1860 per litre, whichever is higher

 

(b) Beer whose local raw material content excluding water is at

least 75% by weight of its constituents

 

 

30% or Shs. 650/= per litre, whichever is higher

 

(c) Beer produced from barley

grown and malted in Uganda

30% or shs.950 per litre,

 

It’s very evident that no category allows Chibuku to access a 0 percent excise benefit hence the officials’ conclusion that the non-payment of excise duty on the brand is illegal.

Officials say the Law is sufficient to include Chibuku within the taxable bracket and it, like all other brands made from locally sourced grains should be taxed as showed below.

(b) Beer whose local raw material content, excluding water, is at least 75% by weight of its constituents 30% or UGX. 650/= per litre, whichever is higher

Because of the low price of Chibuku (which is only possible as a result of the current 0% excise benefit), officials say it has had the “catastrophic “effect of eating into the share of other formal, taxpaying beers” which is turn has caused tax loss to Government up to the tune of Shs. 2bn per month since its introduction in glass bottles in early 2017 as seen below:

It’s also estimated that if this beer continues to go untaxed for the rest of the fiscal year, the expected loss in Excise duty, Corporation tax and VAT will be approximately Shs 150 Billion.

Rumanyika told ChimpReports that, “As URA we are not aware of any legally valid tax exemption. We follow the law and all taxpayers have a duty to follow the law.”

He added: “Where they do not follow the law we take compliance action to recover lost tax and bring the taxpayer to comply. As URA we have not recognized any Tax Waiver.”

The development underscores URA’s challenges in collecting taxes from powerful players in the beer industry.

Rumanyika said since the taxpayer has lodged an Application in the Tax Appeals Tribunal, URA will file its defense accordingly.

“Since this case is before the Tax Appeals Tribunal (TAT), we cannot therefore go into the merits of the case at this stage,” he emphasised.

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