Intra-EAC trade slumps after execution of 35pc tax on imports

Monday October 23 2023
Namanga border

Police officers clearing a truck at the Namanga border between Kenya and Tanzania. PHOTO | FILE | NMG


Trade among East African Community partners has taken a dive since the implementation of a 35 percent tax on imports a year ago, says a report by the East African Business Council (EABC).

The October 2 report on implementation of EAC Common External Tariff (CET) says the band is yet to stimulate industrialisation to generate an adequate supply of products for trade in the regional Customs Union and Common Market.

The CET report is a follow-up to another by the EABC report, Intra-EAC Trade Brief Analysis, that details the decline of intra EAC trade last year.

Top among the challenges is misclassification of the products in the CET bands, in particular processing of intermediate inputs. Some of the goods covered by the new 35 percent band that are now being imported and subjected to 25 percent or less tax are dairy and meat products, cereals, cotton and textiles, iron and steel, edible oils and beverages and spirits.

Read: Intra-EAC trade down by $1.8bn on barriers, taxation

“The cost of inputs is exorbitantly very high because when you factor in transport costs it becomes extremely expensive to manufacture locally,” said John Kalisa, EABC chief executive.


“When you include domestic issues in each partner state such as the cost of electricity, skills shortage and high taxes, you find that the incentives to produce locally are very low.”


Some of the reported challenges are misclassifications of tariff lines/products, errors and misalignment of tariff lines. Also, some products still need to be moved from other tariff bands to the maximum tariff of 35 percent.

EAC partner states have also failed to uniformly implement the new EAC tariff band as was the case with the previous EAC CET.

The new CET structure retains a sensitive items list that allocates higher import duty rates for some key grain commodities. For example, maize imports from outside the EAC attract 50 percent duty while and rice attracts 75 percent import duty.

Wheat and pulses, which have previously been on the sensitive item list with 35 percent import duty, have now been moved to the new 4th tariff band.

Read: EA trade deficit widens on cheaper exports, dearer imports

The 4th band mainly caters for final products that are sufficiently produced in the region or have high potential to being sufficiently produced or that are likely to maximise tax revenue for the region.

The other three bands are zero percent for raw materials or essential products, 10 percent for intermediate products and 25 percent for final products not sufficiently available in the region.

“The philosophy of the four-band structure is good. However, there are mediative circumstances that may not make it very functional and one of them is that there is no structure on ‘application of stays. It is at whims,” said Anthony Mwangi, CEO Kenya Association of Manufacturers.

“Governments are coming up with stays of applications and, therefore, it is not functioning as it should because of interference with Application of Stays that are being issued on people’s individual interests. So, it was to be a collective interest for the EAC common market, but it has gone back to the individual country’s interests.”

The EAC partner states have continued to apply for Stays of Applications (SOAs) and Country Specific Duty Remission creating an unlevel playing field for the producers, manufacturers and traders across the region.

The action has in addition frustrated intra EAC trade and investment as well as regional value addition which were among the objectives of developing the EAC CET 2022 Version which took over five years to review the former three band EAC Common External Tariff.

According to the EABC, the impact of the failure to fully implement the new CET version has affected intra trade according to a report released last month.

The Intra-EAC Trade Brief Analysis report reveals a distressing decline in the value of trade among EAC member states.

Read: Here is the biggest hurdle to AfCFTA take-off

In 2022, the total trade value witnessed a drastic reduction of more than 33 percent, amounting to a staggering $1.8 billion drop, from $5.4 billion in 2021 to a mere $3.6 billion.

Analysis of the report indicates that intra-EAC trade experienced the most significant impact in two key sectors.

However, the report also highlights a glimmer of hope as intra-export trade in maize saw a noteworthy increase of 63 percent, rising from $114.6 million to $187.1 million.

The CET study made recommendations among them, that the region ensures uniform application of EAC CET 2022 Version by all EAC Partner States.

“The above-mentioned challenges compromise progress towards achieving the intended objectives of the new EAC CET 2022 Version. To mitigate these challenges, businesses proposed that Partner States should opt for Regional (EAC) Duty Remission Scheme instead of Country’s Specific Duty Remission to promote market access,” the study concludes.

It also recommended the abolishment of Stay of Applications (SOAs) which are creating an unlevel playing field and frustrating regional value addition and intra EAC trade.

“The report also recommends that the government involve the private sector in the process of inclusion of additional products into 4th Tariff Band which attract 35percent import duty.”