Duties imposed on services exported within East Africa should be scrapped if businesses are to fully benefit from the Customs Union.

Rwanda and Tanzania have been singled out as EAC countries that have maintained value added tax (VAT) on services rendered by foreigners in their countries, a move which has adversely affecting business in the region. Analysts say this explains why services in Rwanda are priced three times higher than among its regional peers.

“Why not waive taxes on intra-EAC services? Give the same treatment to services as goods,” David Tarimo country senior partners PricewaterCoopers (PwC) for Tanzania said while presenting a paper on fiscal policy in the region.

Mr Tarimo said the protectionism some member states are practising has been a concern to chief executive officers in the region.
A survey carried out by PwC on CEOs in Africa revealed that protectionist tendencies threaten growth prospects.

In the 2014 African CEO Survey by PwC of 260 CEOs from 18 African countries, at least Kenyan CEOs were more concerned about protectionist tendencies, meaning the practice is hurting Kenyan businesses most.

The survey revealed that 60 per cent of the CEOs from Kenya feel protectionist tendencies are hurting their businesses’ growth.
In Rwanda, where the protectionist duty is applied, CEOs expressed less concern, with only 33 per cent saying the practice hurts their businesses, followed by Ugandans at 46 per cent. Tanzanians were the most worried, at 64 per cent.

Rwanda and Uganda have also been faulted for imposing high withholding tax rates ranging from 15 per cent to 20 per cent.

Besides, the countries charge input tax ,which is recovered on imported services. This means when companies registered for VAT buy goods or services from another supplier, VAT is charged.

Similarly, when the company sells its own goods or services it charges its customers VAT at the same rate. This is output tax.
To create a level playing ground for regional investors, PwC recommends that EAC partner states align their regulations and laws to regional agreements.

When the recommendation is implemented and applied, it will deepen services liberalisation and promote free movement of services.
“The free movement of services should not only be on paper but also in practice,” said Mr Tarimo.

Another worry expressed by experts is that the continued charging of VAT could hurt Rwanda’s plan to promote outsourcing and other services.

But regional service providers will have to wait a little longer as it will require amendments to the current tax law, which empowers the taxman to only zero rate  services exported outside Rwanda.

The Commissioner General of the Rwanda Revenue Authority, Richard Tusabe, said that the services sector in the country can only be deepened when his country aligns its policies with that of its sister countries.

The pressure has mounted and now it seems Rwanda is going to amend the law as it imports most of the services.
Despite improved delivery time of goods and services the East African Business Summit was concerned that there are still delays at customs border point.