Tanzania is proposing to implement sweeping changes in the East African Community common external tariff (CET) regime, increasing duty on almost three quarters of the goods, as it seeks to protect local industries.
Kenya also announced similar measures, but on a smaller scale, saying it is important to grow local industries and increase production while protecting producers from cheap imports.
Last month, finance ministers from the East African Community agreed to effect changes to the CET and make amendments to the EAC Customs Management Act 2004, to protect local industries and farmers from cheap imports of items like sugar, maize, wheat and rice, as well as Customs-related taxation measures.
However, only Tanzania has sought to fully implement these changes in the 2018/19 fiscal year, with Kenya only proposing to implement three of the proposed 25 changes.
Uganda and Rwanda have not proposed any changes in the budgets delivered on Thursday.
The current CET is based on three bands: 25 per cent for finished goods, 10 per cent for intermediate goods and zero per cent for raw materials and capital goods, with a limited number of products on the “sensitive goods” list, which attract rates above the maximum 25 per cent.
The three-band tariff package has been blamed for killing competitiveness of local businesses and obstructing intra-regional trade by forcing them to pay duty of 25 per cent on some imported inputs which should ordinarily attract zero per cent or 10 per cent duty.
The EAC CET was last reviewed in 2010, but the three-band scheme was retained.
Now traders dealing in sugar, sweets, edible oil, safety matches, steel and iron products, chocolates, tomato sauce, meat, sausages, biscuits and mineral water will face higher tariffs in Tanzania, as the country increased duty by between 10 per cent and 35 per cent.
Tanzania’s Finance Minister Dr Philip Mpango, while presenting the country’s $14.25 billion budget, said that the main focus of these amendments was industrialisation for job creation and shared prosperity.
In Kenya, Finance Cabinet Secretary Henry Rotich said the review of the CET would help to further protect industries in the region.
Boosting agriculture and industry
Traders dealing in mineral water will be the hardest hit as Tanzania proposed to apply duty of 60 per cent instead of 25 per cent for one year.
“There is sufficient capacity to produce this type of water in the country and therefore there is a need to protect local industries,” said Dr Mpango.
He increased the tariffs on crude palm oil to 25 per cent for one year, to promote local production of oil seeds and edible oil, taking into account the available opportunities to increase its production. This move, he said, is expected to boost employment in the agriculture and industrial sectors.
The Finance Minister also increased duty on semi-refined and refined/double refined edible oil including sunflower oil, palm oil, groundnuts oil, olive oil, maize corn oil to 35 per cent for the next one year, from 25 per cent.
In Nairobi, Mr Rotich announced the introduction of a specific rate of $500 per tonne or 35 per cent duty, whichever is higher, on imported vegetable oils.
Mr Rotich said that Kenya’s local manufacturers have adequate capacity to manufacture vegetable oils to meet regional demand.
“This measure is intended to promote the processing of edible oils in the country using locally grown seeds and save foreign exchange used in the importation of edible oil,” said Dr Mpango.
The trade in confectioneries, which is still a contentious issue between Kenya and Tanzania, also featured in the budgets, with tariffs going up to 25 per cent from 10 per cent. Dar es Salaam raised the tariffs on sugar, biscuits and chocolate by a similar margin.
But wheat traders have a reason to smile after Dar es Salaam announced that it will apply an import duty of 10 per cent instead of 35 per cent on the grain for one year.
“The measure takes into account that the EAC lacks adequate capacity to produce enough wheat to meet the demand,” said Dr Mpango.
He also granted a duty remission on paper used to manufacture exercise books and textbooks, and applied a duty rate of 15 per cent instead of 25 per cent. The papers used for the manufacture of gypsum board will now enjoy zero duty, instead of 10 per cent, for one year.
Dr Mpango said this is intended to promote local manufacturing, employment and increase government revenues.
"The measure will apply only to manufacturers of exercise books and textbooks and it is the government’s expectation that producers and suppliers of these books will make them available at affordable prices," said Dr Mpango.
Kenya has proposed to increase import duty on some paper and paper products, with Mr Rotich saying that the country has sufficient capacity to produce them.
Other items that will enjoy duty remissions include self-adhesive label (10 per cent instead of 25 per cent); printed aluminium barrier laminates ( zero per cent instead of 25 per cent; reduced duty rate of polyvinyl alcohol, a raw material for manufacturing paints) from 10 per cent to zero.
Soap and pesticide manufacturers in Kenya will also enjoy zero duty for the next one year. Nairobi is allowing manufacturers of these products to import raw materials and inputs under the EAC duty remission scheme.
"Pests and vectors continue to pose a great risk to crop and animal production," said Mr Rotich.
"Despite our potential to produce pesticides and acaricides locally, we continue to import them. To encourage local production, I have allowed manufacturers of these products to import raw materials and inputs under the EAC duty remission scheme."
Just as Rwanda lost the benefits of the US Agoa deal over its duty regime on secondhand clothes and shoes, Nairobi has introduced a specific rate of import duty of $5 per unit or 35 per cent, whichever is higher, a move it says should guard against undervaluation of the imports.
"Our textile and footwear sector is closing down due to increased unfair competition from cheap imported textiles and footwear as well as secondhand clothing and footwear," said Mr Rotich.
To protect its iron and steel industries, Kenya has increased the rate of import duty from 25 per cent to 35 per cent for a wide range of steel and iron products.
He also reviewed taxes on furniture imports to protect the local timber and furniture businesses.
Particleboard will attract a duty of $110 per tonne, medium density fibreboard $120 per tonne, plywood $230 and $200/tonne on block boards, or an ad valorem duty of 35 per cent, whichever is higher.
Mr Rotich told parliament that the region is also taking steps to remove non-tariff barriers, with the implementation of the EAC Non-Tariff Barriers Act, 2017.
"We have established an online reporting mechanism for non-tariff barriers," he said.