A profound contradiction lies at the heart of Uganda’s tax policy for the multi-million dollar second-hand goods (SHG) sector.
While the country is legally bound to assess duties based on the value of imported items, the Uganda Revenue Authority (URA) enforces a system that taxes them by weight, a practice that not only violates regional law but is systematically crippling the traders who clothe majority of the population.
A comprehensive study by Gateway Research Centre, drawing on field data from traders and officials, exposes the reality of this conflict. The East African Community Customs Management Act (EACCMA), 2004, which Uganda assented to, explicitly requires customs duty to be levied on the declared transaction value as documented on the invoice.
The subsequent EAC Customs Valuation Manual (2010) reinforces this, stipulating that the primary valuation method must be transaction value. Despite this legal framework, URA applies a specific duty per kilogram: $0.89 for used clothes, $1.41 for shoes, and $2.34 for bags. This weight-based model is stacked on top of other ad-valorem levies, creating an effective tax burden that traders report can reach a crushing 45-55 per cent of the customs value.
“URA applies a specific duty per kilogram on used clothing, footwear, and bags rather than using the invoice value as mandated by the EACCMA,” the report states, adding that “Uganda has not yet fully adhered to EAC standards for customs valuation regarding second-hand imports.”
A promise made, a promise broken
The injustice of this system has not gone unchallenged. Following trader protests, a meeting was convened in 2024 between URA, the ministry of Finance, and the Kampala City Traders’ Association (KACITA).
The outcome was a landmark consensus: URA agreed to ban the per-kilogram tax and transition to an invoice-based system.
“It was agreed to ban taxation per kilogram and URA promised to switch to invoice value taxation,” the report confirms. However, it adds a critical caveat: “no official date was communicated for this to be effected.”
To date, the resolution remains unimplemented, leaving traders in a state of policy limbo and financial distress.
The human and economic cost
The real-world impact of this illegal and inefficient tax model is devastating for traders. A shoe importer lamented the exponential rise in costs: “Due to the tax increase, import taxes have multiplied. For example, a 20-foot container that used to be cleared at about Shs 30 to 40 million now incurs a fluctuating tax of between Shs 300 to 400 million.”
This has led to a situation where “many importers have abandoned their goods, appearing unwilling to clear them,” the report notes. This anecdotal evidence is supported by macroeconomic data.
Despite tax increases, the revenue contribution from second-hand clothing to Uganda’s GDP has remained stagnant at between 0.16 per cent and 0.20 per cent.
The report suggests this indicates two government losses: reduced import volumes or increased evasion, and tax policy ineffectiveness. The per-kilogram model is also fundamentally unfair. It levies the same tax on a lightweight, low-value t-shirt as it does on a heavy, high-end cold weather coat.
This “blind taxation” fails to account for the vast quality differences within a single bale.
“URA does not care what is inside the bale. Whether it’s full of small, unsellable bags or torn clothes, you pay the same high tax,” explained Naigaga, a bag seller in Jinja market.
“But when you open it, you find goods that can’t even fetch Shs 5,000 in the market.”
This approach erodes profit margins, forces traders to increase consumer prices, and fuels a cycle of informality and corruption. Over a third (36.6 per cent) of traders cited taxes as the biggest barrier to their survival, while 26.5 per cent believed URA officers collude with clearing agents to inflate charges.
Path to legality and economic sense
To align Ugandan law with practice and rescue a vital economic sector, the report proposes several concrete policy recommendations:
URA must immediately honour its agreement and the law: The most urgent step is for the Uganda Revenue Authority to publicly announce a clear timeline for the full implementation of the invoice-based valuation system agreed upon with KACITA.
This is not merely a policy preference but a legal obligation under the EACCMA. Transitioning from a per-kilogram to a value-based system would restore fairness, boost trader compliance, and enhance Uganda’s standing as a nation that respects its treaty obligations.
Introduce a tiered, equity-focused tax regime: Pending the full shift to invoice value, URA and the ministry of Finance should immediately design and implement a tiered tax system based on bale grade.
A bale of high-quality, first-class (Grade ‘A’) items could be taxed at a higher rate per kg, while a bale of lower-quality, third-class (‘Fagi’) items would be taxed at a significantly lower rate.
This would introduce a basic element of fairness, ensuring that traders are not bankrupted by taxes on unsellable stock and that the tax burden is somewhat proportional to the potential profit.
Enhance transparency and combat exploitation through digitization: To build trust and reduce the reliance on corrupt intermediaries, URA should develop a dedicated SHG importer portal.
This portal should be integrated with a transparent digital cost estimator tool, allowing traders to calculate their potential tax liability in real-time based on their invoice.
This would demystify the process, reduce the power of exploitative brokers, and empower traders, especially the small and medium-sized enterprises that dominate the sector.
Mandate parliamentary oversight on EAC compliance: Parliament should exercise its oversight role to mandate the ministry of Finance and URA to report quarterly on progress made toward full compliance with the EACCMA.
This would create accountability and ensure that the commitment to reform does not once again fade into obscurity. Parliament must assert that Uganda’s national trade policies cannot operate in contravention of its regional legal commitments.
The current system of taxing weight over worth is a legal and economic failure. It breaks the law, breaks the backs of traders, and ultimately breaks the trust of Ugandan citizens in their institutions.
Upholding the law is not just a matter of legal compliance; it is the first step towards building a tax system that is just, predictable, and supportive of the livelihoods of millions.
Authored by Kiberu Jonah, Vicent Kibira, and Kayemba Joseph, researchers at Gateway Research Centre, Uganda
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