Business: Northern Uganda oil millers seek VAT relief to boo

Uganda's northern oil milling sector is at a critical juncture. Operators in the region—particularly those processing sunflower, soybean, and groundnut oils—are calling for Value Added Tax (VAT) relief as production costs squeeze margins and foreign competition intensifies. This push for fiscal relief signals deeper structural challenges in Uganda's agri-processing value chain and raises questions about the competitiveness of East Africa's commodity processors.

## Why is VAT burden crushing northern Uganda's oil millers?

The issue stems from Uganda's 18% standard VAT rate applied to both inputs and finished goods. Unlike competitors in Tanzania, Kenya, and Ethiopia—where selective VAT exemptions exist for agri-processing—Ugandan oil millers carry the full tax load through production cycles. Input costs (seeds, utilities, packaging) are subject to VAT, yet export-driven millers often cannot recover these taxes efficiently. The result: an effective tax burden estimated at $15 million annually for the sector, compressing already-thin profit margins (typically 8-12% in commodity processing) to unsustainable levels.

Northern Uganda's milling cluster—centered in Lira, Gulu, and Arua districts—has emerged as a regional hub for edible oil production, processing 45,000+ metric tons annually. However, without VAT parity with regional competitors, the sector risks capital flight and reduced capacity utilization. Recent facility expansions in Tanzania's Mbeya region and Ethiopia's Dire Dawa have siphoned investment away from Uganda.

## What is the government's fiscal constraint?

Uganda's tax-to-GDP ratio stands at 12.2%, below East Africa's 14% average and Sub-Saharan Africa's 16.5% benchmark. The Finance Ministry has historically resisted sector-specific VAT exemptions, citing revenue loss ($40-60 million annually per exemption) and equity concerns. However, targeted relief for export-oriented agri-processing could be structured through:

- **Duty drawback schemes** for VAT on inputs used in exported products
- **VAT suspension** on critical inputs (packaging, utilities) for certified exporters
- **Zero-rating** for processed oils sold to regional trade blocs (EAC, COMESA)

Regional precedent exists: Tanzania exempts agri-processing inputs; Kenya applies 0% VAT to certain value-added agricultural products; Ethiopia suspends taxes for export-focused manufacturers.

## How could relief reshape Uganda's competitive position?

A 5-8% effective tax reduction would allow northern millers to cut export prices by 3-4%, directly competing with Tanzania's Dar es Salaam processors and Ethiopia's emerging sector. Uganda processes 60% of the Northern Corridor's edible oils (Uganda, Kenya, South Sudan); maintaining this share requires cost parity. Investment in automated pressing capacity—currently delayed due to cash flow constraints—could add 25,000 metric tons of annual capacity.

The broader implication: agri-processing is Uganda's fastest-growing manufacturing sub-sector (12% CAGR, 2019-2024). Fiscal support here compounds into export revenue ($180 million in oils/fats annually), jobs (8,000+ direct employment), and rural income stabilization. Northern Uganda, historically marginalized in the national economy, stands to benefit disproportionately.

## When might relief materialize?

The government's 2025/26 budget cycle (approval June 2025) is the next decision point. Oil millers are lobbying the Ministry of Trade and the Parliamentary Budget Committee. Success hinges on demonstrating export impact and tax-per-job-created metrics—both favorable for this sector.

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