EAC readies for talks over new uniform taxes

Saturday October 20 2018

East African Community member states

Member states the East African Community have put together country positions on how they intend to review duties on goods entering the regional bloc. PHOTO | NMG 

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Member states the East African Community have put together country positions on how they intend to review duties on goods entering the regional bloc, setting the stage for negotiations ahead of the planned implementation of a new Common External Tariff on July 1, 2019.

EAC’s current CET of zero per cent on raw materials and capital goods, 10 per cent on intermediate goods and 25 per cent on finished goods was agreed upon by the member states on June 23, 2003. It is argued that these rates have been overtaken by changes in both the region’s economic conditions and new trade issues.

The final CET document prepared by national consultants together with a regional consultant appointed by the EAC Secretariat has been deposited at the Secretariat.

Principal Secretary in Kenya’s Ministry of EAC Affairs Susan Koech said partner states are awaiting communication from the Secretariat to start negotiations to reach a common ground on the treatment of sensitive items which have enjoyed excessive preferential treatment through frequent stays of applications.

In the 2018/2019 budget, the EAC Council of Ministers approved various stay of application of CET duty rates on select items in Tanzania, Kenya, Uganda, Rwanda and Burundi effective for a one-year period from July 1, 2018.

For example, Uganda was allowed to increase import duty on chocolates, biscuits and Tomato sauce to 35 per cent from 25 per cent and to increase duty on mineral water to 60 per cent from 25 per cent.

Kenya was allowed to a charge a duty rate of 25 per cent on imports of LPG cylinders instead of 0 per cent.

In Tanzania, the Council of Ministers allowed the country to impose a 35 per cent levy on imports of sausages, chewing gum and other sugar confectioneries (sweets) from 25 per cent.

Rwanda, on the other hand, was allowed to increase duty on imports of LPG cylinders to 25 per cent from 0 per cent and to reduce duty on iron and steel products to 0 per cent from 25 per cent.

“All partner states have completed preparing their national positions and now the next stage is to start engaging at the regional level. We are waiting for the Secretariat to give us the time for these negotiations but we expect the revised CET to be in place by June next year,” said Dr Koech.

It is, however, argued that the negotiations could be complicated by countries which belong to two Customs Unions such as Tanzania which is a member of both the Southern African Development Community (SADC) and the EAC.

Early this month, Tanzania Revenue Authority Commissioner for Customs and Excise Ben Usaje said EAC countries were not keen on reviewing the CET due to other pressing fiscal demands in their own countries.

The proposed negotiations on the EAC CET review are also expected to consider the ongoing tariff liberalisation negotiations within the context of the Tripartite Free Trade Area which brings together the 26 member countries of the three regional economic blocs—EAC, Comesa and SADC.

“We expect the EAC Secretariat to release this CET document for discussion because currently there is a lot of uncertainty among traders on which CET to apply since the existing CET has expired,” said Eliazar Muga, regional integration and trade consultant and managing director of MAP Advisory Services.

According to Garth Frazer, an associate professor of Business Economics at the University of Toronto, smaller, less industrialised and landlocked countries in the region such as Rwanda and Uganda will need to negotiate the most effective tariff regime since their industries encounter higher transport costs for imported inputs and exports.

On the treatment of sensitive goods which require protection, so far Kenya and Uganda hold different views.

Uganda wants to maintain the current list of sensitive products and adopt a four-band tariff structure which takes care of goods that are usually imported as finished products thereby attracting higher duty but which end up being used as raw materials in industrial production. These include clinker, which is used in the manufacturer of cement and palm oil that is used for the manufacture of soap.

To this end, Uganda want an additional band to be introduced which will subject such goods to an import duty of five per cent.

According to Uganda’s proposals, the four-band tariff structure should be zero per cent (raw materials), 5 per cent (both raw material and finished goods), 10 per cent (intermediate goods) and 25 (finished goods).

Sensitive goods such as wheat, rice, milk and sugar usually attract a duty rate of more than 25 per cent to discourage their importation and allow local industries to grow.

Kenya on the other hand wants a four-band tariff structure introduced and some items on the list of sensitive goods be dropped and opened up to competition from imports outside the EAC. Nairobi argues that though some of these sensitive industries have been given a lot of protection they have not taken advantage of this preferential treatment to develop.

The EAC member countries are concerned that regional manufacturers are losing their competitive edge by paying duty at the rate of 25 per cent on some imported inputs which should have ordinarily attracted zero per cent or 10 per cent duty.

The EAC Sectoral Council on Trade, Industry, Finance and Investment had directed that the comprehensive review of the CET be completed by December 2016 for implementation from July 1 2017. But the member states failed to meet this initial date line.