Rising prices spur illicit cigarette trade

 

Smokers are paying high prices for cigarettes after the tax increments. Photo by Stephen Wandera. 

By Ismail Musa Ladu

In Summary

Uganda is in third position in terms of smoking incidence in EA after Kenya and Tanzania.

The government’s move to slap an 11 per cent excise duty on cigarettes has driven the commodity’s prices northwards forcing smokers to resort to illegally imported cigarettes.

This has been seen to gain rapid growth, in northern Uganda and West Nile where legally registered tobacco companies are facing stiff competition from illicit cigarette brands that are not only cheap but have little impact on the growth of the country’s Treasury.

Industry players say they are not surprised about the growth in illicit cigarette trade as an increase in taxes tends to push consumers to cheap and affordable cigarette brands.

According to industry statistics about 15 per cent of the market consumes illicit tobacco products, translating into more than Shs7 billion in revenue loss.

A Prosper mini survey indicates that most of the illicit cigarettes come from South Sudan.

According to URA such items are normally disguised as exports only to end up in the country without paying excise duty as required by law.

“I am not selling as much as I should because there are cheap smuggled brands on the market which sells at a slightly cheaper price,” Mr Sam Onyuthi, a retailer in Arua said.

He added: “This has been worsened by the fact that the price of some cigarettes brand have increased.”

Impact of tax increment
Following the tax increment, the market leader, British American Tobacco recently announced a price increase of its premium brands from Shs4,000 to Shs5,000 a packet. However, the company’s flagship brand Sportsman was maintained at Shs150 per stick for retail prices.

In an interview with the Prosper last week, BAT’s corporate and regulatory affairs manager Diana Apio-Kasyate, said enforcement should be beefed up to take care of illicit trade.

She said illicit trade has the potential to not only eat into genuine companies’ market share but also causes loss of revenue to the government