Double-edged tax measures to grow EAC local industries

Sunday June 16 2019

Finance ministers Henry Rotich (Kenya), Philip Mpango (Tanzania) and Matia Kasaija (Uganda).

Finance ministers Henry Rotich (Kenya), Philip Mpango (Tanzania) and Matia Kasaija (Uganda) on June 13, 2019. PHOTOS | DAILY NATION, EDWIN MJWAHUZI, MORGAN MBABAZI 

JAMES ANYANZWA
By JAMES ANYANZWA
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PATTY MAGUBIRA
By PATTY MAGUBIRA
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East African finance ministers converged on tough taxation measures aimed at protecting local manufacturers from “unfair imports competition,” in their spending plans for the coming year, made public on Thursday.

Most of the tax measures, contained in the budget statements for the 2019/2020 fiscal year, were approved during the ministers’ pre-budget consultations in Arusha in May.

Higher taxation of imports is aimed at driving consumption of cheaper locally produced goods, spurring the growth of manufacturing and creating jobs that ultimately improve living standards.

Proponents of the proposed measures are in line with the EAC Industrialisation Plan that seeks to transform the region into a globally competitive, environment-friendly and sustainable industrial sector that is capable of significantly improving the living standards of the people by 2032.

“The recommendations aim at pushing the regional industrialisation policy, creating jobs and improving East Africans’ living standards,” said Philip Mpango, Tanzania’s Finance and Planning minister.

Uganda, Tanzania, Rwanda and Kenya are focusing on improving the competitiveness of local industries by protecting them from cheaper imports through taxation and other policy measures.

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Despite the good intentions, experts have warned that these tax measures — which are also applicable to goods coming from EAC member states — could stand in the way of integration, as each country becomes inward-looking in a bid to build its industrial capacity.

Already, trade spats, especially between Kenya and Tanzania, have seen Dar es Salaam block Kenyan products from its market. The partners have also failed to agree on a reviewed common external tariff, so the finance ministers have used the contentious stay of application window to secure preferential tax treatment on various goods whose production they believe requires protection to grow.

CUSTOMS DUTY

Customs tax measures, which take effect from July 1, target key sectors such as horticulture, timber, metal and allied, pulp and paper, textiles and leather, agro-processing and diaper manufacturers.

In Tanzania, among the measures Dr Mpango announced is abolishing the 10 per cent Customs duty on raw materials for the production of baby diapers, while retaining   the 25 per cent duty on imports of the same to promote local production. He also abolished the 25 per cent Customs duty on tools used for adding value to gemstones and removed the 10 per cent tax on raw materials used in vegetable packaging for a period of one year.

To protect the horticulture sub-sector, the minister increased duty on imported horticultural products to 35 per cent from 25 per cent. 

Tanzania also scrapped the 20 per cent Customs duty on seeds packaging materials and aluminium alloys to improve the quality of seeds, encourage local production of cooking pans and create jobs.

The policy changes are expected to protect Tanzanian manufacturers, attract investors to the local production of packaging materials and promote exports of vegetables to shore up the country’s foreign reserves.

Tanzania has also introduced a 25 per cent duty on imported paper and a further 10 per cent duty on plastic products used for making door and window frames. Raw materials, spare parts and machines for textile and leather products have been exempted from Customs duty.

In Kenya, Finance Minister Henry Rotich retained the ad valorem rate of import duty on iron and steel products to protect the country’s producers of metal and allied products from continued stiff competition posed by imported subsidised iron and steel products.

Mr Rotich is seeking to maintain an import duty of 25 per cent on paper and paper products for a period of one year to protect manufacturers of these products. CET on these products is fixed at 10 per cent, but Kenya last year sought a stay of application to impose a tariff of 25 per cent for a period of one year.

“On matters relating to Customs, I have proposed measures intended to make our products more competitive while at the same time protecting local industries from unfair competition,” said Mr Rotich.

Kenya has also reduced import duty on raw timber to 0 per cent from 10 per cent to ensure that manufacturers of furniture and other products have adequate supply of raw materials. Nairobi has also retained an ad valorem rate of import duty at 25 per cent on all imported timber products to protect the timber and furniture industry from a proliferation of cheap finished products and to enhance local production.

GROWTH

The Kenya Association of Manufacturers reckons that the country’s industrial growth has stagnated at a GDP contribution of 10 per cent over the past 10 years, with a decline to 9.2 per cent in 2016.

“The growth and development of any country is dependent on the ability of its industries to compete regionally and internationally,” said Phyllis Wakiaga, the association’s chief executive. “Hence promoting the competitiveness of local industries should be prioritised.”

In Rwanda, Finance Minister Uzziel Ndagijimana has   reduced import duty on a range of raw materials used in industry to 0 per cent instead of 10 per cent or 25 per cent, and those used in manufacturing of textile garments and footwear to zero per cent instead of 10 per cent or 25 per cent

Dr Ndagijimana also maintained a 4 per cent duty per kilogramme of second-hand clothes, instead of $2.5 per kilogramme, and $5 per kilogramme for used shoes, instead of $0.4. He also retained import duty rate of 25 per cent for 70,000 tonnes of sugar instead of 100 per cent or $460 per tonne, whichever is higher.

Rwanda has also tried to increase the competitiveness of its industries through provision of basic infrastructure such as the on-going construction of Bugesera Industrial Park.

“We intend to increase the production in different sectors and enforce policies to create additional jobs,” said Dr Ndagijimana.

In Uganda, Finance Minister Matia Kasaija said promoting agro-processing will be the basis for the country’s industrialisation and job creation.

Mr Kasaija said the manufacturing sector can now meet domestic demand for basic products like cement, tiles, light steel and consumables such as sugar and soap, and that the next phase of manufacturing will be to produce goods for exports.

“This strategy is built on the rapid industrialisation of our economy linked to high productivity,” he said.

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