Uganda Vegetable Oil firm seeks tax exemption

THE headquarters of Mount Meru Group is a Spartan affair arrived at via a deeply portholed all-weather road that winds through the Arusha industrial area.

Arusha is an unusual site for an enterprise that has regional ambitions, but managing director Atul Mittal likes it that way.

"I relocated to Dar es Salaam briefly…. I was born here and everybody knows me. Here I am a person. In Dar, when people see me, they see money," he says.

The centre piece of the complex is an oil refinery that processes up to 50,000 tonnes of oil seed annually.

Not the biggest of its plants, but it is the stepping stone off which Mt Meru is expanding aggressively into regional seed oil production.

Starting as a petroleum product distributor in 1978, the company branched out into oil seed oil production in 1993, and two years ago set up camp in Lira to mill soya seed oil.

"At 200,000 tonnes per annum production capacity, it is the biggest single investment in northern Uganda," Atul said.

He estimates that up to 30,000 farmers supply the $30m (sh75b) plant but laments that it is operating at barely a tenth of its full capacity.

"We made the investment on the promise that certain incentives will be afforded the industry but these have not come through," Atul said.

Soya farmers in the region bumped up production to 30,000 tonnes from 5,000 tonnes before Mt Meru entered the fray.

For the last three years Mt Meru Millers have been spearheading a Uganda Oil Seed Producers and Processors attempt to have products manufactured from local oil seed be VAT zero rated.

By making them zero rated, the manufacturers would not charge VAT on their finished goods while being allowed to claim VAT they had been charged by their suppliers.

“Assuming I now charge sh118,000 for a 20-liter jerry can of cooking oil, if I am zero rated I will reduce my price to sh100,000 of the 18% I have cut of the top of the price about 3 to 4% would go to the end consumer, 10 - 12% to the farmer in increased prices for his crop and the rest to me as the manufacturer,” Atul said.

The logic would be that the farmer thus incentivised would up production to benefit from the better prices and it seems to have worked in Tanzania. In 2010/11 Tanzania made all products from locally produced seed oil zero rated a year later finance minister Mustafa Mkulo reported that as result of this measure oil seeds -- sunflower, ground nut and sesame production had doubled.

“This is the only sustainable way Uganda can support the industry - the farmer wins, the manufacturer wins and the Government wins because of greater job creation, more investment into the sector and therefore more taxes,” he said.

However numerous presentations to government have come up against a stone wall, but it is hoped that government’s new drive to make economic growth more inclusive in coming years will smile favourably on the proposal.

Finance ministry officials were unavailable to comment at the time of going to press. In private, one official said the proposal is unlikely to be included in next week’s budget as government was struggling to save every bit of revenue they could get their hands on.

Almost a decade ago the umbrella body Oil Seed Processors and Producers had lobbied to be afforded the same benefits as palm oil investor BIDCO, but government officials at the time argued the two sectors were not comparable with the perennial crop palm having a longer gestation period before full production in 15 years.

The Government signed an agreement with BIDCO in 2003, which included a 25-year corporation tax holiday, a 17-year holiday from VAT, zero import, customs and excise duties on imported equipment and zero withholding tax on interest on loans. BIDCO, which has gone into limited production, was also promised 36,000 hectares of land to lease, but currently has under 10,000 hectares under palm.

But Atul argues that incentivising oil seed will have little no impact on BIDCO's project.

“Uganda’s oil seed demand stands at about 150,000 tonnes annually, currently total local production is about half that so there is scope for growth and it would be in government’s interest to support as many players as possible,” he said.

Besides he added that palm oil's natural habitat in Uganda is confined to the highlands and Bundibugyo so other farmers around the country would not benefit.

Uganda is key to Mount Meru's investment plans but Atul remains unfazed.

“By this time next year our plants in Rwanda and Zambia - which will be the biggest refinery in Africa outside South Africa will have gone into production, Uganda will take some time but I know it will come through one day.”

By Paul Busharizi
The New Vision Newspaper
12 June 2012