The people of Uganda often ask why the same imported product can be sold at sharply different prices by different traders, yet the Uganda Revenue Authority (URA) says the answer does not necessarily lie in tax evasion or differences in customs valuation.
URA Commissioner General John Musinguzi Rujoki, in his weekly column in the New Vision, has explained that importers dealing in similar goods can face very different business costs before the goods reach the final consumer, meaning that the price at which a trader sells an item is not determined by import taxes alone.
“The Uganda Revenue Authority (URA) ensures fairness and prevents under declaration by applying a standardized valuation system aligned with World Trade Organization (WTO) guidelines and the East African Community Customs Management Act (EACCMA),” Musinguzi said.
His explanation is important because price differences between apparently identical imported goods can easily create suspicion among consumers and competing traders. If one shop sells an imported item at Shs50,000 and another sells what appears to be the same product at Shs70,000, it may seem logical to assume that one trader paid less tax.
But URA says there are several legitimate reasons why the two prices can differ. Musinguzi explained that URA uses transaction value as the primary method of determining the customs value of imported goods. Where the declared value raises concerns, URA can use its valuation database and other prescribed valuation methods to establish whether the declaration is credible.
“URA Customs utilizes a valuation database as a risk management tool to flag deviations and may shift to alternative methods such as comparing identical or similar goods if declared prices are deemed non-credible,” he said.
The system, according to URA Commissioner General, is supported by the ASYCUDA World system, which enables real-time monitoring and data validation. URA also conducts post-clearance audits to identify irregularities and recover unpaid taxes where necessary.
But once goods have passed through customs, the importer still has several other costs to meet before the product reaches the consumer.
Musinguzi listed shipping and transportation costs among the factors that can contribute to price differences. Handling charges can also vary, particularly where one trader uses a more expensive clearing, storage or distribution arrangement.
The quantity purchased can make an even bigger difference. A trader importing thousands of units may negotiate a better price with a manufacturer than another trader buying only a small consignment.
There can also be differences arising from agreements between traders and manufacturers, as well as the bargaining power of individual importers.
Credit arrangements with suppliers are another factor. An importer who receives favourable credit terms may operate at a lower cost than one who has to pay suppliers immediately or borrow money at a high cost.
URA also identifies operational expenses and the source of funds as factors that can influence the final selling price.
Musinguzi said the authority seeks to create “a predictable and non-arbitrary trading environment that protects compliant importers from unfair market competition,” meaning that two businesses can import similar products, comply with customs requirements and still arrive at different retail prices because their commercial circumstances are different.
The explanation also separates two issues that are often confused, and these are, customs valuation and retail pricing. URA determines the taxable value of imported goods and collects the applicable taxes, but it does not determine the final price at which a trader must sell the goods.
A consumer therefore should not automatically conclude that a cheaper or more expensive product is evidence of tax manipulation simply because the products look identical.
For URA, the bigger issue is whether the importer accurately declared the value of the goods and paid the taxes required by law. Once that obligation has been met, factors such as transportation, bargaining, financing, distribution and operating costs can legitimately determine what the final buyer eventually pays.
