Uganda: Finance Minister Scraps Tax Incentives On Rice Imports

Kampala — Finance minister Matia Kasaija has instructed the minister of East African Community Affairs, Kirunda Kivejinja, to terminate tax incentives given to rice importers.

The directive, which took effect on January 1, caught the importers unaware with some saying they were not given prior notice to make necessary adjustments.

“All of a sudden, the ministry has decided to increase taxes on husked rice to equal that of already processed rice which is not fair, this is going to drive up prices of rice in the market,” Mr Geoffrey Adito, the director of operations at Kingdom Rice, said.

Kingdom Rice is one of the largest importers of husked rice which is processed and packaged at their 500-tonne milling plant in Namanve.

SWT, which imports half processed rice from Pakistan, says the hike in the tax rate will drive up prices in the local market.

The importers want government to make distinction between finished and unfinished rice because those who import unfinished rice cannot compete with those who trade in the finished product. They say their shipments are in Mombasa, at sea and as such will suffer huge losses due to the unplanned for directive.

Not enough local capacity
“When we were setting up the factory, Uganda Investment Authority told us that there was more than enough supply of rice in the local market. So we mobilised investors, got money and set up a rice mill in three months,” Mr Adito said.

However, he says when they went out to buy the rice, they bought off 50,000 tonnes of rice in two weeks and there was nothing more to buy in the local market. The 50,000 tonnes could not sustain the plant beyond a month.

Mr Adito said they then approached government with a proposal to import husked rice which would then be processed at the factory. “Government gave us that duty price of $250 per metric tonne (MT) and they gave us one year to set up a farm and build local capacity. However, after six months without any notice to us we get directive from ministry of finance that on January 1, the duty rates were changing,” he said.

Mr Adito said with the directive, investors will pull away causing job losses. Kingdom Rice employs 250 people at their factory directly and many more in their distribution chain.

The Letter
The letter which was sent to the EAC on December 14, is copied to the Permanent Secretary ministry of Finance, Auditor General’s office, the Accountant General, the Commissioner General Uganda Revenue Authority and the Uganda Development Bank.

“This is to request you to notify the East African Community Gazzette Legal Notice No. EAC/33/2016 where Uganda was granted a duty to remission to apply the rate of 75 per cent or $250/MT on imported rice which has been enjoyed by some rice importers,”

The letter is also notifying URA to start to effect the directive which seek to reinstate the EAC tax rate charged on every tonne of rice imported from the subsidised rate of $250 (Shs900,000) per MT to $345 (Shs1.2 million) per MT.

“Accordingly all importers will pay the same common external tariff (CET) of 75 per cent or $345 (Shs1.2m) per metric tonne of imported rice in accordance with the EAC common external tariff (CET),” the instructions read in part.

Mr Kasaija, in a phone interview with Daily Monitor confirmed to us that he wrote the letter to Mr Kirunda Kivejinja the minister of East African Community Affairs. He refused to give any further comments on the subject matter instead directed us to read the letter that he wrote to the EAC.

“You read the letter you will find all the answers and details in it,” he said.

The letter, which Daily Monitor has seen, is notifying EAC secretariat that government will from the effect of January 1, 2017 terminate the stay of application on rice.

The minister, however, said that the ministry was going to create a fund for rice commodity development under Uganda Development Bank Limited to benefit all rice millers.

Trade minister speaks

When contacted, Ms Amelia Kyambadde, the minister of Trade, said she will have to study the termination letter further and also ascertain how many people were importing the rice and would be affected by the directive so as to avoid distorting production and prices of rice in the market.

“I will study the issue further however, the termination of importing rice is good for promotion of local production and encourage local production as opposed to importing what can be grown here,” she said.

According to statistics from Ministry of trade, Uganda consumes about 300,000 tonnes of rice a year and this demand has largely been supplemented by imported rice.

According to Mr Adito, Kingdom Rice enjoys 60 per cent of the local market and this has been sustained by the plant in Namanve. They now want government to stay the directive for the remaining six months which time would enable them finish setting up their $45m (Shs162b) 10,000 acres firm in Kween to build local capacity.

Source: Daily Monitor, Uganda.  Jonathan Adengo and Dorothy Nakaweesi