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Expert appointed to advise EAC on a tax policy for the region

Sunday December 24 2017
MUTUKULA

Goods trucks await clearance at the Uganda-Tanzania border post of Mutukula. PHOTO FILE | NMG

By JAMES ANYANZWA

East African Community partner states have hired a former tax policy advisor at the World Bank and the International Monetary Fund to help fasttrack harmonising domestic taxes in an attempt to create a common investment destination with a favourable taxation regime.

This comes after the EAC dropped the IMF, which was providing technical assistance to the project.

Dr Rup Khadka, now a consultant of the Harvard Institute for International Development and chairman of the Nepalese Government High Level Tax System Review Commission has been tasked to steer the process of harmonising EAC domestic taxes to fruition.

Dr Khadka will advise on the development of the draft domestic taxes policy — the first step towards harmonisation — and work with national consultants to bring equality in taxation across the region.

“He has a lot of experience in tax matters. This time we are hopeful we shall be able to conclude the tax harmonisation sometime next year,” a source told The East African.

A meeting by the EAC partner states which was held in Nairobi this month noted that the process of matching such taxes would be gradual starting with excise duty followed by VAT and finally income tax.

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The domestic taxes policy was initially being prepared with an input of the IMF and the German Agency for International Co-operation.

But the EAC has made little progress in the harmonisation of its domestic taxes — value added tax, excise duty and income tax — with some member countries worried of the potential loss of revenues.

Taking too long

In 2016, the EAC Committee on Fiscal Affairs said the drafting of the domestic taxes harmonisation policy was taking too long to complete.

The decision to bring on board another foreign consultant was reached by the EAC finance ministers in Arusha in May this year.

The draft domestic taxes harmonisation policy proposes a uniform VAT rate for all EAC countries to ensure economic efficiency and simplicity of compliance and administration.

According to the policy one option would be to set a minimum rate and allow partner states a freedom to set higher rates if they so wish or set a band (minimum and maximum rates).

The policy proposes specific excise tax rate to be applied on tobacco, alcohol, and fuel and where necessary a hybrid system. The Ad valorem system is less preferred as one could tamper with prices to reduce tax liability.

With regard to income tax, the focus will be on harmonization of personal and corporate income tax systems.

Harmonisation of domestic taxes is a key component of the EAC integration process that seeks to match tax rates and tax policies of the member countries in order to remove distortions in the common market.

It is expected to cover tax rates, tax bases, tax exemptions and tax procedures.

The policy will lay the groundwork for the eventual harmonisation of the tax regime in the region.

Harmonisation of tax legislations is expected to eliminate harmful tax competition and promote EAC as a friendly investment destination.

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