Kenya has protested Tanzania’s move to impose a higher local content requirement for tobacco exports.

At the just ended 32nd East African Council of Ministers meeting in Arusha, Kenya complained that Tanzania demands that 75 per cent of the inputs into tobacco exports must be from the exporting state, contrary to the EAC Treaty.

According to Article 75(6) of the EAC Treaty and Article 15 of the Customs Union Protocol, partner states should give preferential treatment to products from EAC countries.

The EAC Secretariat interpreted local to mean all goods originating from EAC partner states — in this case, tobacco from Kenya exported to Tanzania — hence tradable under the community tariff treatment within the EAC.

The former EA rules of origin required only 35 per cent of local inputs for goods to qualify as originating from a member state for them to be duty-free.

British American Tobacco has maintained that the 75 per cent local content required by Tanzania Revenue Authority does not conform to the EAC rules of origins.

In the revised rules, the value threshold has been lowered from 35 per cent to 30 per cent on local imports, and will be calculated by using the ex-works price instead of the ex-factory, making the products more affordable.

Ex-works price includes distribution costs like transport and logistics to the shop yard while the ex-factory price looks at the value added on the factory floor only.

The EAC Council of Ministers directed Tanzania to update Kenya on the removal of the 75 per cent requirement on tobacco products exported from Nairobi to Dar at the next Council meeting.

Acting executive director of East African Business Council Lilian Awinja said that with the East African Community Common Market, harmonising tax regimes in the five partner states is crucial.

Ms Awinja said that disparities in domestic taxes have contributed to high tax administration and compliance costs, harmful tax competition, as well as smuggling of highly taxed excisable goods.

“This has led uncompetitiveness and low consumer welfare,” she said and called for a policy on products manufactured using raw materials from EAC region.