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Kenyan traders’ reprieve after EAC agency rules on export tax

Wednesday January 28 2015

Kenyan traders have won a major reprieve after a top organ of the East African Community trading bloc ruled that taxes on exports will be based on ex-factory prices of goods, offering a clarification that potentially minimises stand-offs with Customs officials.

Increased spats have recently slowed trade as tax authorities from the respective EAC member countries battled over the valuation of goods transferred from one partner state to another.

The EAC bloc is Kenya’s single-biggest export market, which makes the ruling a big win for manufacturers in the country.

“We have been receiving complaints by traders across the region over non-level playing fields and we decided to intervene and give a technical direction on how things should be done. All partner states must play by the rules,” said the EAC director general in-charge of customs and trade, Peter Kiguta, in an interview.

Kenyan manufacturers welcomed the ruling, saying it would help accelerate trade.

“A notable effect is that the cost of goods is likely to be cheaper in the target markets which is good for trade,” said Emmanuel Alenga, an official of the Kenya Association of Manufacturers.

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A common dispute has been on the valuation of goods produced and sold within EAC, with some States insisting that value added tax (VAT) should be pegged on the final cost of products, including cost of transport, insurance and handling.

But the EAC directorate of Customs has said taxation of goods will be based on their factory production costs.

“The valuation of goods by Customs for VAT purposes upon entry into a partner state is the ex-factory price of that product, which is the basis upon which local VAT is computed for the same or like product in the partner State,” it said in an administrative ruling.

EARLIER: Uganda traders escalate cargo dispute to EAC

“The inclusion of other costs after ex-factory level would be inconsistent with the principles of a Customs Union since they introduce a discriminatory element in the treatment of goods.”

An assessment done by a key organ of the community mid-2014 revealed that Kenya, Uganda, Tanzania, Rwanda and Burundi are struggling to balance the spirit of the Customs Union launched four years ago by shielding local businesses from competition.

The report by the EAC Sectoral Council on Trade, Industry, Finance and Investment showed that the EAC members had introduced taxes that are inconsistent with the Customs Union Protocol, which champions for seamless trade among them.

The taxes and other non-tariff barriers appear targeted at discouraging exports, with accusations of rules of origin being breached by manufacturers re-selling imports without any significant value addition.

Vehicle assembly, tobacco, beer, sugar, rice, beef, dairy and metal are among the industries at the centre of the dispute.

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