KAMPALA, Uganda — A surge in tax exemptions and widespread trade fraud is costing Uganda billions of shillings in potential revenue from the steel sector, leaving the industry at a difficult crossroads.
While steel is a leading tax contributor within manufacturing, the sector is plagued by trade misinvoicing on both raw materials and finished products. This practice involves under-reporting values to evade tariffs or over-reporting to move capital out of the country.
Data shows that trade misinvoicing in iron and steel products cost Uganda an estimated 99.7 billion shillings annually between 2006 and 2015. These losses come at a time of increasing fiscal pressure, with the national public debt rising to 119.4 trillion shillings by late September.
The revenue drain is compounded by the government’s aggressive incentive policies. Tax expenditures — revenue the government chooses to forego through exemptions — grew 46% between 2019 and last year. In the 2023-24 financial year, the government waived 3.609 trillion shillings, representing 13% of all tax collections.
Last year, 21 steel companies benefited from these incentives, which include duty waivers on critical raw materials like wire rods.
Allan Ssenyondwa, policy and advocacy manager at the Uganda Manufacturers’ Association, defended the measures as a necessary “protection tool” for infant industries in sensitive sectors.
However, analysts warn that poor oversight has turned these incentives into a source of leakage. Mark Mutumba, a trade policy analyst, said regulatory gaps have allowed for customs manipulation.
“Governments eager to accelerate industrial output may tolerate, inadequately supervise or loosely apply duty remission,” Mutumba said.
The Uganda Revenue Authority maintains that exemptions are justified if they lead to job creation, but the cost of foregone customs duties alone reached 1.137 trillion shillings in the most recent financial year.
Regional tensions are also mounting. Tanzania recently imposed a 5% levy on imported steel from neighboring countries, prompting Ugandan manufacturers to call for reciprocal taxes. Additionally, local firms have warned of an influx of underpriced steel from Kenya that is distorting the domestic market.
To address the crisis, experts are calling for a reform of the incentive framework. Mutumba suggested that the government should move away from annual tax-break renewals and instead implement multi-year agreements tied to specific goals for job creation and export growth.
