Soon after hosting representatives of Kampala traders at State House Entebbe a couple of months ago, and being on the receiving end of a barrage of complaints mainly around implementation of the EFRIS online taxation system, President Yoweri Museveni took to his X account with two questions:
“Do we want to build our country, Uganda or other countries, by trading in goods produced by them? Must we continue to cause a hemorrhage of the little that we have made through agriculture and other sectors by sending our money outside?’
It would be interesting to know how many traders took careful note of this particular X post. When he later met them in en masse during a meeting at the Kololo Ceremonial Grounds, no one on record stood up to provide some answers.
Clearly though, the questions were squarely directed at the traders, indicating Museveni’s train of thoughts given his crusade for value addition.
The Electronic Fiscal Receipting and Invoicing System (EFRIS) was introduced by the Uganda Revenue Authority (URA) to make it easier to ensure tax compliance in real time instead of relying on business people to do the responsible thing.
Another concern raised by the traders related to how some imported used clothing items are being taxed and the increasing presence of foreigners in retail trading.
Kampala City Traders Association (KACITA) Chairperson, Dr. Thadeus Musoke Nagenda said, “We support the foreign investors here, but they are competing with us. They manufacture their goods, we buy them, but they also come to the market and set up shops to compete with us.”
To a certain extent, the traders have a point and URA cannot deny that often tax incentives given to foreign investors have been abused.
President Museveni said he would get back to them. Furthermore, as a peace offering, he directed URA to ease off on the punitive approach. So URA waived the penalties it had imposed on VAT-registered taxpayers who failed to issue fiscalized receipts through EFRIS.
The traders were not amused that a scheduled meeting to further discuss these issues with the President has been postponed twice. The most recent postponement resulted in some of them refusing to open for business again, convinced that this was a presidential brush-off. Backing for the second boycott however was lukewarm.
Meanwhile in the aftermath of a youth protest and the Kiteezi tragedy which turned into a garbage crisis, the traders’ woes have seemingly been relegated further down the government’s ‘to do list’.
EFRIS is still in force, and as much as Museveni sympathizes with the traders’ difficulties in grappling with new technology, he continues to be unimpressed by some of the consumer items they import as the basis for their businesses.
That said, China is currently the leading source for these goods and their marketing can be very persuasive. A sample flier reads: ‘With as little as $300, you can quickly get goods from China and resell for a profit in Uganda. This is because China, unlike many other countries, caters to everyone in the market’.
As things now stand, Uganda has a trade imbalance, meaning we import far more than we export. The President’s view is simple, “Now that we have an educated workforce, enough electricity, good roads and that we are building or repairing the railway system, every effort must be made to add value to all our products.”
Considering Uganda’s capacity to grow cotton and spin it into yarn for textiles and garments, Museveni is no fan of imported used clothing commonly known as mivumba.
In a study published earlier this year, Justine Luwedde, a Research Analyst with the Economic Policy Research Centre based at Makerere said Uganda’s imports of second-hand clothes have increased overtime by 43% from $61 million in 2013 to $106 million in 2022. Many small and medium-sized enterprises rely on the trading of second-hand clothes as their source of income.
A situation where hundreds of thousands of people endure the hot sun, selling imported used clothing and moreover bought with scarce foreign exchange, does not equate well with Vision 2040.
The traders are in a tricky position. Government is committed to value addition, not only to boost industrialization and increase exports, but also generate more foreign exchange. On the other hand, many of our traders are dealing in items very suitable for import substitution.
Although Museveni is acutely aware of the overwhelming unpopularity a total mivumba ban would trigger, at the end of 2023 he said, “We can replace these second-hand clothes. It cannot be done overnight, but we can do it gradually,” he said.
In spite of intense pressure from the Americans, nearly 10 years ago, the Rwanda government banned mivumba imports. We are yet to see anyone walking about naked, although theRwanda Revenue Authority has seen a spike in the smuggling of these clothes into the country since the ban.
It is no secret that our traders are risk averse. Better to own a city building, full of multiple lock-ups, with tenants who just happen to deal in the goods that you import in bulk, than setting up a factory or processing plant. Yet the growth of local industries creates more jobs and can help achieve a balance between imports and exports. Going forward the government tax regime will continue to reflect this objective.
Many of our traders are well-heeled. They are cash-rich, but also reluctant to look at the bigger picture such as forming joint stock companies or partnerships to produce goods at scale and compete with foreign investors. They also would rather do without the scrutiny into their financial affairs.
There are exceptions of course. Last May, Morrison Rwakakamba, the Board Chairman of the Uganda Investment Authority (UIA) said, “We’re seeing an interesting trend in Uganda’s business sector growth. Ugandan billionaires are transitioning from trading to real estate to big-time industrialists. In Namanve Industrial Park you get big factories like Mariana, Ntake, Luuka and Bella all started by one-time traders.”
People have frequently complained that UIA only cares about foreign investors. After years of working out the kinks, UIA has now officially launched the Domestic Investment Division (DID), a special-purpose vehicle for promoting and deepening domestic investments in Uganda.
According to UIA Director General, Robert Mukiza, DID will focus on domestic investors, guiding and supporting them to graduate into successful investors capable of adding value to raw materials, creating jobs and contributing to the economic development of Uganda.
True to its word, at the end of July UIA launchedthe ‘Transitioning Kikuubo Traders to Manufacturing’ initiative.It is intended to promote import substitution, by enabling traders who for many years have been dealing in imported products, to seize import substitution opportunities and the incentives that go with this policy.
UIA wants to increase the value of domestic investment from 24.4% to 50% by the end of 2025 by supporting initiatives like business linkages, import substitution, promoting export-oriented industries, and improving SME competitiveness.
This is an invitation to our traders to step up into the big time. But it requires a change of mindset, many perhaps are reluctant to undertake, because it also involves full disclosure and a greater sense of statutory compliance.
The writing is on the wall and the quicker our traders embrace the government’s value addition agenda, the better they will fare in future. The fact that some leading traders distorted the EFRIS messaging as a new tax which immediately caused the initial outcry also reflects their insecure position.
In all likelihood, the next meeting with the President will involve the traders being told to face some hard truths. Value addition is the way forward. Their current business model is similar to the circumstances of an endangered species.