Cost of smuggling on Uganda’s economy

By Annet Nantongo 

Between July to December 2022, URA seized over 5,734 goods, recovering revenue worth shillings 57.21 billion. From these seizures, 4,503 were from dutiable goods and 1,231 were from non-dutiable goods. The riskiest goods in the same period were assorted items, textiles, garments, footwear, bags, used Items, motor vehicle spares, hardware, and hair.

The East Africa Community Customs Management Act (EACCMA 2004) as revised in 2009, refers to smuggling as the importation, exportation, or transfer or removal of goods into or out of Partner States with intent to defraud the Customs revenue, or to evade any prohibition of or restriction on such importation or exportation.

Emmanuel Emasu, a customs enforcement officer, noted that cigarettes (including flavoured tobacco alias shisha) comprise over 27% of the seized goods. The Karuma enforcement station alone seized 750 cartons of cigarettes translating to 7.5 million cigarette sticks.

“In terms of revenue, that is over shillings 1Bn lost to illicit cigarette trade,” said Emasu.

The biggest facilitators to this vice are transporters who create concealed compartments in their vehicles; clearing agents who under or mis-declare goods’ values; and importers who present falsified and doctored documents to illegally reduce the tax due.

Smuggling has evolved over the years and takes several forms such as outright smuggling where traders move goods deliberately seeking unmanned entry points to avoid encountering customs officials. Concealment is another form where a taxpayer deceives the customs officer and also creates false compartments in logistics cars to hide goods.

Misclassification refers to using different codes to attract lower or no taxes on the goods; while for falsification, taxpayers present doctored documents in order to undervalue the cost of goods and attract lower duty.

Taxpayers also smuggle by way of diverting transit goods where cargo intended for export, say to South Sudan is channelled back into the Uganda without paying taxes due. Other traders are round-tripping transit goods. Here, they take cargo to the destination country, offload, then trickle the goods back into Uganda until the consolidation centres are filled and they sale them on the local market.

Biggest losers in smuggling is the government because revenue lost in illicit trade results into insufficient funds for development projects. For instance, URA’s recovery of revenue worth shillings 91Bn from seized illicit goods in the financial year 2021/2022 could finance 910 parishes with shillings 100 million each under the Parish Development Model.

Consumers are also placed at health risks such as contracting cancer from some of the banned goods for instance skin cancer from skin bleaching cosmetics or lung cancer from cigarettes.

It is undoubtable that smuggling creates an unfair play field in the economy because legitimate traders are suffocated by illicit traders who sell at lower prices that attract more buyers from the market.

Charged with the roles of trade facilitation, protection of national heritage, and protection of citizens from harmful goods, among others, URA Customs continuously lobbies for policies to reduce the burden of smuggling on Uganda’s economy.

For instance, the East African Community levied a 75% import duty, 18% VAT, 6%withholding tax and 1.5% infrastructure levy on basmati or Pakistan rice imported from outside of the East African Community. This regulation is meant to protect and create a market for the East African rice farmers, a move that smugglers are working hard to frustrate because URA recovers averagely 25 metric tonnes of rice per month from smuggling operations.

In addition, URA has deployed a number of compliance measures to counter smuggling such as non-intrusive inspection (NII) cargo scanners, electronic cargo tracking system, and intelligence gathering, among others. Traders are advised to steer clear of smuggling so that they are not caught on the wrong side of the trade laws.

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