EAC finance ministers seek to create more jobs for youth in spending plans
Saturday June 13 2015
Protecting jobs was a key highlight of the national budgets read simultaneously by EAC finance ministers on Thursday last week.
In the budgets, the finance ministers announced harmonised new taxes — common external tariffs (CET) — on export and imported goods as well as the removal of some sensitive goods from the duty remission and exemption schemes.
The new measures are intended to increase incentives to manufacturers in the EAC partner states that will increase productivity and create more jobs for the youth.
“The move by the finance ministers is a good step in promoting industrial growth and increasing consumption of locally-produced goods which will result in a drop in the consumer pricing on goods,” said Denis Karera, chairman of the East African Business Council.
“It will also ensure that local industries remain competitive.”
The EAC partner states apply different export and import duty rates for raw material and finished products under the CET and duty remission schemes.
Under the EAC’s CET regime, raw materials imported into the region attract no duty. Semi-finished goods attract 10 per cent while finished goods are charged 25 per cent duty.
The duty remissions scheme allows manufacturers of commodities deemed essential for the EAC economies such as sugar, to import inputs without paying the applicable tariff rate of 25 per cent.
To encourage local manufacturers of fishing nets, EAC ministers have provided for the importation of nylon yarn and synthetic twine under the duty remission scheme at a rate of 0 per cent instead of 10 per cent. Imports of ready made fishing nets will attract duty at a rate of 25 per cent instead of 10 per cent to protect local manufacturers.
Consumers of pasta, which is not manufactured in any of the EAC partner states, could soon enjoy more affordable prices after its raw material semolina was brought under the duty remission scheme at a rate of 0 per cent instead of 25 per cent.
“This is a good move by the partner states that will see new manufacturing industries in the food sector come up in the region and essentially reduce the price of food,” said Mr Karera.
“Food industries are essential to the growth of the EAC economy. If most industries focus on value addition, which is a major challenge to most industries, then competition for the imported goods will rise and prices for the consumers will drop.”
Paper and paper board products have been subject to a stay of application of the CET at the rate of 25 per cent, making them more expensive for users of the products.
In order to lower the cost of these products, Kenya negotiated a withdrawal of the stay of application of the 25 per cent CET on paper and paperboard products which will now be subjected to a 10 per cent import duty. The stay application window allows countries to waive the application of the CET for sensitive goods in the country for a certain period of time.
“This will redress the anomaly created in October 2014 of a blanket increase in duty that had rendered the paper industry uncompetitive especially in Kenya that relies on imports,” said Sachen Gudka, vice chairman of the Trade & Tax Committee at Kenya Association of Manufacturers.
To protect the sugar factories that are on the verge of closing down due to competition from cheap imports, East African partners have increased the specific duty rate from $200 to $460 per metric tonne. The ad valorem (“according to value”) rate remains 100 per cent of the customs value.
“This measure will cushion the sugar sector from unfair competition and enable our local factories to break even and pay the farmers promptly,” said Henry Rotich, Kenya’s Treasury Cabinet Secretary.
For Tanzania, industrial sugar will be subject to 10 per cent duty. The initial payment by importers will be 50 per cent but a refund of 40 per cent will be provided once the Tanzania Revenue Authority has certified that the sugar has been used in the manufacturing process. In Rwanda, imported sugar which is below 70 tonnes will not be taxed.
Kenya is the biggest beneficiary of the EAC harmonised tax regime as it is the sole manufacture of some of the goods removed from the list of exemption. For example, the EAC Ministers for Finance agreed to remove gas cylinders from the exemption regime, and they will now attract a 25 per cent tax.
“I negotiated to import gas cylinders at a rate of 25 per cent to protect our local manufacturers,” said Mr Rotich.
Kenya is also the sole manufacturer of plastic tubes for packing toothpaste and cosmetics. In the new budgets, the import duty rate on the tubes was increased from 10 per cent to 25 per cent.
Uganda Rwanda and Burundi will benefit from the zero rating of services to goods in transit. This had made the cost of goods passing through Kenya more expensive because transporters could not claim the VAT from last year when the services were exempted from the consumption levy.
“In order to encourage and sustain growth in this sector and also to harmonise the treatment of these services across the region, I propose to zero rate services in respect of goods in transit,” said Mr Rotich.
In order to make it cheaper and competitive for the Kenyan private sector to conduct business in East Africa, the governments also agreed to lower the Import Declaration Fee from 2.25 per cent to 2 per cent.
Nikhil Hira, tax partner at Deloitte East Africa, said a reduction in the IDF will make imports cheaper.
“This is a positive move; we look forward to seeing this rate eventually going down to 1.5 per cent,” he said.
Tanzania and Uganda already have their IDF at 1.5 per cent.
For Uganda motor vehicle importers, road tractors for semi trailers will now be subjected to 0 per cent rate instead of 10 per cent, while motor vehicle for the transportation of goods with gross vehicles weight between five tonnes and 20 tonnes will attract a duty of 10 per cent instead of 25 per cent.
The motor vehicles for transport of goods with gross weight exceeding 20 tonnes will attract 0 per cent instead of 25 per cent; buses for the transportation of more than 25 persons at a rate 10 per cent instead 25 per cent.
“The benefits are valid for a period of one year; therefore, the private sector is encouraged to take advantage,” Uganda’s Finance Minister Matia Kasaija said.
READ: Kenya looks to increase duty on EAC car imports
Uganda has also increased duty on wines imported from outside the country from 70 per cent to 80 per cent. To implement the One Area Network for the EAC region that came into effect on January 1, the excise duty of 9 US cents on international calls from the Northern Corridor countries has been removed.
Tanzania has given an extension of duty at 0 per cent for manufacturers using linear alkyl benzene sulfonic acid (labsa) as a raw material for soap manufacture for a further year, a reduction of the duty rate from 10 per cent to 0 per cent on solvent used for match sticks for one year, and an extension of exemption from import duty provided to the Armed Forces Canteen Organisation for a year.
The import duty rates in Rwanda for goods originating outside EAC have been also been amended from 25 per cent to 0 per cent; for tractors/semi trailers, from 25 per cent to 10 per cent on motor vehicles weighing between five to 20 tonnes, and from 10 per cent to 0 per cent for motor vehicles that weigh more than 20 tonnes.
Motor vehicles which carry between 25 and 50 passengers will be taxed at 10 per cent down from 25 per cent while those carrying above 50 passengers will be taxed at 0 per cent.
“Wheat will be taxed between 35 per cent to 0 per cent duty while rice will be taxed a duty of between 75 per cent,” said Rwanda in the budget statement.