'Lowering Excise Duty on locally made spirits welcome'

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Stakeholders in the manufacturing and alcohol industries have welcomed the Government’s proposal to lower Excise Duty on locally manufactured undenatured spirits, hailing it as a strategic move to promote domestic manufacturing, protect local industries, and stimulate agricultural production.

The proposal, tabled by general duties finance state minister Henry Musasizi seeks to reduce the tax burden on locally made spirits with an alcohol strength of 80 per cent or more by volume

Musasizi presented the Excise Duty (Amendment) Bill, 2025, before the Parliament's finance committee on February 18, 2025, urging lawmakers to approve the amendments for the good of the economy.

Uganda Manufacturers Association (UMA) executive director Dr Ezra Muhumuza Rubanda praised the initiative, stating that lowering Excise Duty on locally manufactured spirits would boost the demand for raw materials such as sorghum, millet, bananas, and cassava.

“Farmers will benefit immensely as factories will require more raw materials, creating market opportunities and increasing household incomes,” Rubanda said.

Uganda Alcohol Industry Association (UAIA) secretary general Jackie Tahakanizibwa, also Uganda Breweries' corporate relations, public policy, and regulatory affairs manager, described the proposed tax revision as a positive step towards ensuring fair competition.

“This adjustment supports local manufacturers and will also help curb the alarming rate of illicit alcohol consumption by making legitimate products more affordable and competitive,” she explained

Background of Excise Duty on spirits

Parliament previously passed the Excise Duty (Amendment) Act, 2024, which set high tax rates on undenatured spirits. The law deleted Clause 3 (c) (a), which imposed an excise duty of 60 per cent or shillings 5,000 per litre, whichever was higher, on undenatured spirits with an alcohol content of 80 per cent or more made from locally produced raw materials.

The Act also reduced the excise duty for undenatured spirits of the same strength made from imported raw materials from 100 per cent or shillings 5,000 per litre to 100 per cent or shillings 2,500 per litre, whichever was higher.

Proposed amendments and justification

Musasizi explained that the Excise Duty (Amendment) Bill, 2025, aims to make further revisions by cutting the excise duty from 60 per cent or sh5,000 per litre to 60 percent or shillings 1,500 per litre, whichever is higher, for undenatured spirits of 80 per cent alcohol strength or more made from local raw materials.

Additionally, the Bill proposes a uniform excise duty rate of 60 per cent or sh1,700 per litre, whichever is higher, for both imported and locally produced spirits of less than 80 per cent alcohol strength.

“If the bill is not passed, the government risks losing revenue from undenatured spirits produced using locally sourced raw materials. Moreover, maintaining the same tax rate for both imported and local spirits discourages domestic manufacturers and contradicts our import substitution strategy,” Musasizi said.

Finance ministry director of economic affairs Moses Kagwa underscored the economic implications, revealing a decline in revenue from locally made spirits.

“Last year, we collected shillings 68.8 billion from locally produced spirits, but in the past eight months alone, revenue has dropped to shillings 34.6 billion,” Kagwa disclosed.

“We can't sit back and watch our local industries collapse while farmers lose valuable markets for their produce".

Lawmakers weigh in

Members of Parliament had mixed reactions to the proposed amendments. Amos Kankunda (Rwampara County, NRM), Chairperson of the Parliamentary Finance Committee, backed the initiative, stressing the importance of protecting local industries.

“This proposal aligns with our vision to support domestic manufacturing. However, we need to ensure that the reduction in excise duty does not compromise government revenue collection,” Kankunda noted.

Moses Aleper (Chekwii County, Kadam, NRM), the committee's deputy chairperson, challenged the finance ministry to provide concrete research backing its proposal.

“We cannot make tax policy decisions based on speculation. The ministry must present data-driven evidence showing how this reduction will impact government revenue and industry growth,” Aleper asserted.

Nathan Nandala-Mafabi (Budadiri County West, FDC) pressed the finance minister on the revenue implications, demanding a detailed analysis of the financial impact.

“Can you provide clear projections showing how this amendment will affect government revenue and local production?” Mafabi queried.

On the other hand, Jane Avur Pacuto (Pakwach District Woman Representative, NRM) supported the amendment, highlighting its potential benefits for farmers.

“A tax reduction will incentivize increased production of cassava and other raw materials needed in spirit manufacturing, thereby improving livelihoods,” she said.

Economic Impact of the alcohol industry

The alcohol industry is a significant revenue contributor, generating approximately sh12.3 trillion annually, according to the Uganda Alcohol Industry Association.

However, illicit alcohol sales continue to pose a challenge, leading to an estimated tax revenue loss of about $458 million (sh1.724 trillion) each year.

The industry also plays a critical role in employment, directly or indirectly supporting around six million Ugandans across the value chain, from farming to retail distribution.

Understanding undenatured spirits

Undenatured spirits, with an alcohol strength of 80 percent or more, are highly concentrated alcoholic products derived from raw materials like sugarcane, maize, millet, and cassava.

Unlike denatured spirits, which contain added chemicals to make them undrinkable, undenatured spirits are used in beverages, industrial applications, and pharmaceuticals.