“We have had a long period of talks with the government and the communication we have now received is that our demands are going to be attended to,” she said last week, a day after UFEA members held a meeting with President Yoweri Museveni. “We are hopeful that what we want will be incorporated in the Investment Bill, which is before parliament.”
Some 80 per cent of exporters exempted from taxes under the export promotion scheme belong to the floriculture industry.
The sector is now demanding a 10-year tax holiday; a duty-free tax holiday for capital equipment, raw materials and other resources; and exemptions from withholding tax, value added tax and stamp duty.
Should their bid succeed, the exporters will enjoy a similar regime to their Kenyan counterparts.
The Kenya government in 2003 waived withholding tax on imported services for the flower sector after lobbying by the Kenya Flower Council and the Fresh Produce Exporters Association of Kenya.
Last year, a similar waiver was extended to fruits and vegetables.
Also untaxed are royalties on planting materials while the industry is a major beneficiary of the general reduction of VAT from 18 to 16 per cent.
The sector also enjoys duty-free importation of all agricultural inputs and is set to benefit further when obsolete licences are abolished in a proposal to reduce more than 1,300 existing licences to only those regarded as necessary in a bid to make it easier for businesses to register and operate.
A list of the Uganda export promotion scheme’s beneficiaries in 2007, obtained from the Uganda Revenue Authority (URA), showed that 12 of the 15 firms are floricultural exports.
The other three are Begumisa Enterprises Ltd, which exports fish under its subsidiary Tropical Fish Industries Ltd; mining firm Kasese Cobalt Company, and garments maker Apparel Tri-star.
The latter closed shop last year, leaving the government with losses of up to $20 million.
Ms Musoke said the floriculture industry needs more tax incentives than those currently offered under the export promotion scheme for it to develop to a level where it can compete with regional floriculture powerhouses Kenya and Ethiopia.
While Kenya is the leading exporter of flowers to the European Union, Ethiopia is said to be emerging as the next production giant in Africa.
“We haven’t seen any new farms in the past eight years,” Ms Musoke said, adding, “Although there has been an increase in total production from the 20 farms currently in operation, the absence of new entrants has seen its annual growth rate drop from 26 per cent of five years ago to the 14 per cent today.”
Under the export promotion scheme — which URA says was started to compensate exporters for infrastructural inadequacies and the cost of bureaucratic hurdles in the country — the firms are exempted from paying any taxes on their exports.
URA public relations officer Patrick Mukiibi said flower exporters have also been receiving incentives like investment capital allowances at 50-70 per cent depending on their location, protection of the investors’ assets from acquisition, and, in the unlikely case of acquisition, full compensation at fair market prices within a year.
But UFEA says the current incentives cannot attract new investors.
The association says that for this reason, two Ugandan flower-exporting firms — SAI and Xpressions — last December relocated to Ethiopia, because the Addis Ababa government offered better investment incentives.
Ms Musoke said the government needs to work on the incentives to “motivate the existing farms to stay on and expand their production capacity.” The flower sector is Uganda’s fourth largest foreign exchange earner, bringing in $40 million annually.
Uganda is fifth behind Kenya — Africa’s leading exporter of cut flowers. However, since it was started in 1992, the industry has expanded to 20 flower growers and exporters with a total of 70 hectares.
Last year, production dropped to 6,868 tonnes of flowers from 7,500 tonnes of 2005. Ms Musoke says the industry has the potential to expand to 400 hectares, which would earn Uganda some $200 million in foreign exchange per year.
“We need to match the incentives that Kenya and Ethiopia have put in place if we are to compete,” she said. “Both two countries had set aside specific loans to boost their floriculture industries.
Although Uganda earns less than half Kenya’s income from the sector, Kenya’s flower exporters are seeking recognition as Export Processing Zones to enjoy further tax waivers and be accorded special infrastructure development.