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Can digital tax stamps solve Uganda’s dual challenge of tax evasion and consumer protection?
There has been a growing threat over the years from different companies and institutions over the so many counterfeits products in the country.
It is estimated that millions of dollars are lost annually as a result of tax evasion linked to the sale of untaxed counterfeit goods.
These counterfeit goods not only undermine legitimate businesses but also erode valuable government revenue and jeopardize the health and safety of consumers.
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Uganda’s fight against counterfeit goods has taken a bold leap forward with the introduction of Digital Tax Stamps (DTS).
But how do these digital innovations balance the need for increased tax revenue while safeguarding Ugandan consumers from harmful substandard products?
Digital tax stamps are a form of advanced technology embedded with unique security features that enable the tracking and verification of goods.
These stamps are applied to products by manufacturers or importers, and they contain digital information, which can be easily accessed by both authorities and consumers using scanners or mobile applications.
At their core, digital tax stamps serve a dual purpose: they verify the authenticity of goods and ensure that the correct taxes have been paid on those goods.
These stamps include encrypted data that link each item to the relevant tax records in Uganda’s tax system.
They also carry information like serial numbers, product details, and expiry dates, which can be cross-checked by regulators to confirm that the goods are genuine.
Uganda seeks to curb the flow of counterfeit products, promote fair competition, and ensure that tax obligations are met, all while safeguarding public health and fostering a more transparent, compliant market.
Digital Tax Stamps (DTS) were introduced in 2019 and overtime have revolutionized the way Uganda tackles counterfeiting and tax evasion.
This initiative targeted manufacturers and importers dealing in certain goods, such as alcoholic beverages, tobacco products, soft drinks, and pharmaceuticals, are required to affix DTS to their products before they can be legally sold in the country.
This initiative gained significant traction and is an essential part of the government's ongoing digital transformation efforts.
Manufacturers of certain listed products must integrate digital tax stamps into their production processes. For instance, beverage manufacturers, including those producing juices and carbonated drinks, must comply with the DTS system.
The stamps, which are verified using mobile applications like the KAKASA smartphone tool, make it easy for consumers to authenticate products before purchase.
The cost of a digital tax stamp in Uganda ranges depending on the type of product and its production volume.
While the government has made efforts to keep the cost affordable, some manufacturers, especially small-scale ones, have raised concerns about the financial burden of adopting this technology.
However, the long-term benefits of tax compliance and counterfeit prevention far outweigh these initial costs, for both manufacturers and government.
The Government of Uganda has taken a proactive stance in enforcing tax compliance by destroying products that do not meet the required tax and health standards.
Products such as juices, alcoholic and non-alcoholic beverages, and cement are often seized for failing to display digital tax stamps, and are destroyed in government-certified facilities like Luweero Industries Ltd, in Nakasongola District.
In 2023 alone, over 10,000 tons of counterfeit goods were destroyed at Luweero Industries. This figure includes over 3,000 tons of non-compliant beverages and several thousand tons of cement.
Each product that is seized and destroyed represents not only a loss in government revenue but also an unfair disadvantage to legitimate businesses in Uganda, which are taxed according to law.
The government’s crackdown on illicit trade has been crucial in reducing the prevalence of counterfeit goods, but the question remains, can DTS completely eliminate the circulation of these substandard products?
While digital tax stamps (DTS) have shown great promise in curbing counterfeiting, the ever-evolving nature of illicit trade means that DTS alone cannot fully eliminate the problem.
To truly combat this issue, a comprehensive approach is required. This includes enhancing law enforcement to tackle illegal activities more effectively, educating consumers on how to identify counterfeit goods, and offering incentives to businesses that comply with tax regulations
Additionally, the government can partner with international organizations and increase public-private sector collaboration to further combat illicit trade.
These efforts should also include expanding digital literacy and infrastructure, particularly in rural areas, to ensure that consumers and businesses can fully engage with the DTS system.
There is also need to partner with international organizations and fostering greater collaboration between the public and private sectors.
Such efforts should focus on expanding digital literacy and improving infrastructure, especially in rural areas, to ensure that both consumers and businesses can effectively engage with the Digital Tax Stamp (DTS) system.
Digital tax stamps provide a wealth of benefits that go beyond simply tackling counterfeiting. Businesses now have a reliable way to ensure that products are properly taxed an element that minimizes the risk of costly penalties from tax evasion.
They are as well a powerful tool in protecting a company’s brand and reputation, safeguarding it from counterfeiters and preserving consumer trust.
For consumers, digital tax stamps offer peace of mind by allowing them to easily verify the authenticity of products before making a purchase—especially crucial for high-value or health-sensitive items like pharmaceuticals and food.
Moreover, with the rise of mobile apps and online platforms for verification, consumers can make well-informed decisions, confidently avoiding counterfeit goods and contributing to a safer, more transparent marketplace.
As government continues to modernize its tax regime and improve product traceability, the introduction and expansion of DTS will remain a key part of the national development agenda as now, consumers are now empowered to verify products via their smart phones, helping to shape a brighter, more transparent future for Uganda’s marketplace.
The biggest challenge ahead of government now is to ensure that this tool evolves in tandem with the growing sophistication of the counterfeiting industry, and to provide the necessary resources to achieve full market compliance.
Will DTS be the Solution to Counterfeiting? Despite the fact that Digital tax stamps have certainly made a significant impact in Uganda, the issue of whether they can completely eradicate counterfeiting remains an open question.
It’s clear, however, that DTS will continue to play a crucial role in Uganda’s fight against illicit trade and its efforts to increase tax revenue.
The writer is a Chartered Tax Accountant and an International tax advisor