Huge taxes will continue to water down dividends Kampala, Uganda | ISAAC KHISA | Have you ever imagined running a company that hands over a huge chunk of its revenue to government as tax compared to shareholders’ dividends?
This is the situation that managers at the British American Tobacco Uganda (BATU) face as they strive to turn around the firm’s operations.
The tables turned against the shareholders in the cigarette firm when the government enacted the Tobacco Control Act in 2016 as a measure to deter cigarette smoking.
Anti-tobacco activists argued that there was an increase in health-related issues linked to tobacco use such as cancer, heart disease and high blood pressure.
Since then, the firm’s revenue has dropped sharply over the years although in recent years, the revenue has slowly picked up. Ironically, it is the government that has been the major beneficiary raking in more revenue from BATU.
The latest financial results released on Feb.14 show that although BATU recorded Shs164.3bn in revenue in 2019 thanks to its revamped portfolio and distribution efficiency, its contribution to government revenue in form of excise duty, Value Added Tax and Corporation tax took a whopping Shs96bn.
The shareholders remained with merely Shs15.7bn as net profit to share among themselves as dividends.
BATU saw a similar trend in 2018, 2017 and 2016. For instance, in 2018, the tobacco firm recorded Shs154bn in revenue but the government took Shs90.5bn as taxes, leaving shareholders with merely Shs13.7bn.
A year earlier, in 2017, BATU recorded Shs149.7bn revenue but the government snatched Shs86.5bn, with the investors remaining with merely Shs12bn.
This is in sharp contrast with the period prior to the enactment of the tough anti-tobacco law. For instance, in 2015, BATU recorded Shs270bn as revenue but paid the government Shs 69bn. The shareholders shared Shs 36.8bn as dividend, which was the net profit for the year.
Market analysts predict the firm might take another 10 years to record such profitability and dividend pay-out similar to that recorded prior to the ant-tobacco law.When contacted to comment on the current trends, the company’s management remained cagey.“I can only say that we are operating under a very tough regulatory environment,” a source at the company who preferred anonymity said. “My comment on our taxes to government vis a vis returns to shareholders may be misinterpreted as promoting cigarette smoking.”However, Nicholas Ecimu, the BATU company secretary, said on Feb.14 that there is still high incidence of illicit trade […]