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British American Tobacco (BAT) Uganda recorded an increase in profit and tax remittances last year despite challenges of illicit trade and increased taxation.
The company posted a profit after tax of Ush13.7 billion ($3.7m), and paid Ush90.5 billion ($24.7 million) in tax.
According to its audited 2018 results released last week, gross revenue increased by 3 per cent to Ush154 billion ($42.1 million), driven by higher prices ttributable to rising excise duty in the market, although the approach was partially offset by lower sales.
In 2017, the company’s gross revenue had grown by eight per cent, with a profit after tax of Ush12.07 billion ($3.2 million), having paid taxes of Ush81 billion ($22.1 million).
BAT’s cost of operations increased by one per cent to Ush49.9 billion ($13.6 million) while the operating margins increased by four basis points to Ush1.8 billion ($494,000) as a result of increased revenue.
A final dividend of Ush280 ($0.08) has been proposed by the company’s board of directors per ordinary share, presented for approval by the shareholders in May.
BAT is the market leader in the tobacco industry in Uganda, with an over 70 per cent share of the cigarette market.
The company, which is listed on the Uganda Securities Exchange, is currently the best-priced stock on the bourse, trading at an average of Ush30,000 ($8.2) per share.
In 2012, BAT closed its tobacco processing plant in Uganda and moved to Kenya, where the company said the costs of doing business were lower.
These results were achieved despite rising illicit trade in cigarettes in Uganda, which, according to the quarterly market tracker, averaged 22 per cent in 2018, reducing the amount of duty-paid cigarettes and denying the government revenue.
BAT Uganda managing director Mathu Kiunjuri said the improved performance is attributed to improved productivity and a focus on value brands.
The company’s top brands are Rex, Dunhill and Safari.
Board chairman Elly Karuhanga said a regionally integrated infrastructure network has reduced the cost of doing business.
“We, however, seek the government’s support in addressing the negative impacts of the illicit trade, which results in billions of shillings being lost in government revenues and presents a threat to legitimate businesses,” Mr Karuhanga said.
The cigarette sector argues that increasing taxes on imports contributes to increased smuggling, especially from neighbouring Kenya.
The government regularly increases taxes on tobacco products because of its health hazards.
In the 2017/2018 financial year, the government imposed a charge of Ush75,000 ($20.5) per 1,000 imported cigarette sticks, and Ush100,000 ($27.3) per 1,000 sticks of hinge-lid cigarettes.
Although tobacco use has decreased from 10.5 per cent in 2012/13 to 5.4 per cent in 2016/17, smoking among the youth has remained high.
A 2018 study by the Economic Policy Research Centre, a Kampala-based think tank, noted that the tax changes in Uganda have been driven by the need to raise additional tax revenues rather than by health concerns.
The report recommended that taxes on cigarettes be raised to 70 per cent of the retail price.
Excise taxes currently make up 31 per cent of the retail price for regular cigarettes in Uganda against the World Health Organisation recommendation of 70 per cent.
Uganda ratified the World Health Organisation Framework Convention on Tobacco Control in June 2007, and has since taken a strong anti-tobacco stand.
In April last year, the Uganda Revenue Authority reported that the country loses Ush200 billion ($ 54.7 million) to cigarette smuggling annually.
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