Over sh120b tax from sugarcane lost yearly

The Uganda Revenue Authority (URA) is grappling with an estimated sh120b annual revenue losses due to systemic tax leakages in the sugarcane sector. 

Industry insiders point to weak enforcement, unregulated supply chains and manipulation of weighbridges as key factors enabling tax evasion. 

The country’s sugarcane sector boasts an installed crushing capacity of 52,000 tonnes per day, translating to an annual demand of approximately 15.6 million tonnes of raw materials. 

However, with factories operating at only 60% capacity, actual demand falls to about 9.36 million tonnes per year. 

Farmers estimate that 15-25% of sugarcane deliveries go unreported, leading to an annual loss of approximately 1.6 million tonnes in undeclared supplies. 

At current sugar market prices, this translates to a potential tax loss of sh120b, primarily in value-added tax (VAT) and stamp duty. John Musinguzi Rujoki, the commissioner general of URA, acknowledged gaps in tax collection within the sector. 

“We have observed cases where manufacturers under-declare sugarcane purchases and report lower production volumes, raising concerns of deliberate tax evasion,” he said. 

“Some manufacturers have been selling sugar without stamp duty, while some alcohol manufacturers are evading taxes. Additionally, several factories are purchasing large quantities of sugarcane while reporting lower production levels, which suggests under-declaration. We are now carrying out strict enforcement on value-added sugar processors who are not paying taxes on their profits.”

Farmers push back 

Meanwhile, farmers under the Greater Busoga Sugarcane Growers Co-operative Union Limited have petitioned Parliament, seeking a review of the taxation policies affecting their industry. 

In a petition dated March 17, 2025, the farmers, led by Dr Michael Mugabira, argue that sugarcane, as an agricultural raw material, should not be subjected to income tax. 

They contend that fluctuating sugarcane prices and excessive tax burdens threaten their survival. They said the current break-even price for farmers is sh130,000 per tonne, yet factory gate prices average sh125,000 per tonne, leaving them operating at a loss. 

The Uganda Sugar Act 2020 prescribes a formula for revenue sharing between millers and outgrowers, factoring in statutory taxes such as VAT and stamp duty. 

However, farmers argue that URA’s tax assessments fail to account for these deductions, leading to double taxation. A 50kg bag of sugar, priced at sh182,000 at the factory gate, generates sh32,760 in VAT and sh5,000 in stamp duty. 

Since one tonne of mature sugarcane yields about two bags of sugar, the total tax contribution per tonne amounts to sh75,520. Farmers alone contribute approximately sh37,760 per tonne to the government coffers. 

Notwithstanding these contributions, farmers said URA continues to levy additional tax demands on farmers, exacerbating financial strain on an industry already struggling with low-profit margins. 

Despite these concerns, Musinguzi refuted claims that URA unfairly taxes farmers, clarifying that agricultural income remains largely non-taxable. 

“Income tax applies only to those earning taxable income from profits. Farmers who believe they are unfairly taxed should provide evidence of wrongful assessments,” the URA commissioner general added.

Solutions 

To address revenue leakages and improve tax transparency, the farmers proposed several measures, including connecting all off-station factory weighbridges to URA systems.