Gov’t Plans Tax Hike on Cigarettes and Beer for Revenue, Health Benefits

Summary:

Defending the government’s position, Minister Musasizi stated, “Increasing the duty will not only align with inflationary trends but also serve a public health objective by discouraging tobacco consumption, which imposes significant health costs on the economy. Raising the excise duty on beer manufactured from local raw materials will ensure fair taxation and enable government revenue to keep pace with economic realities.”

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KAMPALA: The Ministry of Finance has proposed an increase in taxes on cigarettes and locally manufactured beer to generate Shs19.40 billion. According to the government, this move comes in response to mounting pressure from health sector stakeholders advocating for higher tobacco taxes to mitigate smoking-related health risks in Uganda.

The proposal was presented by Henry Musasizi, Minister of State for Finance, before Parliament’s Finance Committee while introducing seven tax bills. The plan involves raising excise duty on beer made from local raw materials from Shs650 to Shs900, citing the need to align taxation with prevailing economic conditions and inflation.

“A modest increase in excise duty on cigarettes and beer will generate Shs19.40 billion. The primary objective of this amendment is to generate additional revenue while accounting for inflation, especially on cigarettes. The excise duty on cigarettes in Uganda has remained unchanged since the 2017/18 financial year, while inflation has increased by 28.8% over that period. Additionally, the health sector has urged the government to impose higher taxes on tobacco products to reduce associated health risks,” explained Minister Musasizi.

Defending the government’s position, Minister Musasizi stated, “Increasing the duty will not only align with inflationary trends but also serve a public health objective by discouraging tobacco consumption, which imposes significant health costs on the economy. Raising the excise duty on beer manufactured from local raw materials will ensure fair taxation and enable government revenue to keep pace with economic realities.”

Additionally, the government has proposed introducing an import declaration fee on goods imported for home use, aimed at generating Shs79 billion to fund the construction of the Standard Gauge Railway.

“This measure seeks to raise revenue for infrastructure investment, particularly for the Standard Gauge Railway, which is vital for Uganda’s trade competitiveness. It will also make imports more expensive, encouraging import substitution and supporting local industries. Furthermore, this proposal aligns with Uganda’s policy and those of other East African Community partner states where similar fees are already imposed. For instance, Kenya applies a 2% CIF charge, while Tanzania imposes a 0.6% customs processing fee,” Minister Musasizi elaborated.

The government also plans to adjust penalties under the Electronic Fiscal Receipting and Invoicing System (EFRIS) by replacing the Shs6 million fine on non-compliant taxpayers with a penalty equal to twice the amount of tax owed.

“Concerns have been raised about the high penalties of Shs6 million per invoice, which disproportionately burden taxpayers regardless of the transaction value. To address this issue, we propose amending the penalty structure so that non-compliance results in a penalty twice the tax owed,” Minister Musasizi noted.

Furthermore, the government expects the 2025/26 tax measures outlined in the seven tax bills and Uganda Revenue Authority (URA) administrative measures to generate over Shs2.4 trillion in revenue to finance the national budget.

“To finance the budget, we have proposed a modest tax policy measure. We project to generate Shs538.6 billion in 2025/26 from tax policy proposals in these bills. Additionally, URA administrative measures will generate Shs1.885 trillion, bringing the total projected revenue to Shs2.420 trillion,” stated Minister Musasizi.

The Minister also outlined plans to enhance revenue mobilization by ensuring that the tax system remains predictable, transparent, and fair. This will include leveraging third-party data, such as water and electricity bills, to identify potential taxpayers.

Additionally, the Uganda Revenue Authority intends to hire 1,260 more staff to strengthen tax collection. “We are stepping up efforts to eliminate corruption in revenue collection. Furthermore, we are recruiting 1,260 staff to expand our reach, particularly among high-net-worth individuals in sectors such as construction, transport, and professional services,” Musasizi explained.

The seven tax bills presented include:

• Income Tax (Amendment) Bill No.2, 2025

• Excise Duty (Amendment) Bill No.2, 2025

• Value Added Tax (Amendment) Bill, 2025

• Tax Procedures Code (Amendment) Bill, 2025

• Stamp Duty (Amendment) Bill, 2025

• Hides and Skins Export Duty (Amendment) Bill, 2025

• External Trade (Amendment) Bill, 2025

These proposed amendments aim to enhance government revenue, improve compliance, and align Uganda’s tax system with economic realities and regional practices.