Following the May 5 decision by East African Community Finance ministers to adopt a 35 percent rate for the fourth band of the region’s common external tariff (CET), member countries are working to identify, review and impose new taxes on imported goods to protect local industries.
The new tax whose implementation starts from July 1 will affect commodities such as iron, steel, dairy and meat products.
Other affected imports are cereals, cotton, textiles, edible oils, beverages and spirits.
The CET’s four bands include one for raw materials, which attract zero percent tax, intermediate goods that attract 10 percent tax; secondary intermediate goods charged at 25 percent tax and finished goods, the fourth band, which now stands at 35 percent.
“The process of identifying which products fall in the fourth band is now complete. Most of the products under this band are readily available in the region and, therefore, will attract more tax to import,” said Betty Maina, Kenya’s Cabinet Secretary for Trade, Industrialisation and Enterprise Development.
Finished goods that cannot be produced in the region have been allocated the third band, she added.
Tariff lines, referred to as Customs duties on merchandise imports, provide a price advantage to locally produced goods over similar goods which are imported.
Among the tariff lines in the fourth band are furniture, leather products, fresh-cut flowers, fruits and nuts, sugar and confectionery, coffee, tea and spices, textiles and garments, head gear, ceramic products and paints.
The maximum tariff band at 35 percent was considered as the most appropriate rate as it has the most positive impact on regional growth long term.
“The 35 percent tariff significantly eliminates the use of Stays of Application (SOAs) since some of the EAC partner states are currently applying 35 percent tariff rates on over 50 percent of those products that qualify for the fourth tariff band,” Ms Maina, who is also chairperson of the EAC Council of Ministers, said.
In its application, a welfare loss is expected, but this would be cured by generated added employment opportunities from the switch to local production.
Uganda, Kenya and Tanzania are the most affected following the determination of maximum CET tariff rate for fourth band products at 35 percent.
Indeed, Uganda has called upon the region to impose duty on finished iron and steel products to grow its iron and ore industry.
“The implementation of the reviewed EAC CET starts from 1st July 2022. It shall be applied flexibly, particularly on products affected by the prevailing economic situation,” said Phyllis Wakiaga, CEO Kenya Association of Manufacturers.
“This is a big win for manufacturers, as it will steer the manufacturing sector into an upward spiral, which is needed as we grapple with the effects of the COVID-19 pandemic, and the Russia-Ukraine conflict.”
The effective implementation of the 4th band is expected to secure the progressive growth and competitiveness of the manufacturing sector.
KAM says it will result in better productivity, the creation of job opportunities, increased revenue and regional prosperity.
“Once implemented, it shall spur the growth of various manufacturing sectors in Kenya, including Food and Beverage; Leather and Footwear; Timber, Wood & Furniture; Energy, Electrical & Electronics; Automotive; Textile and Apparels; Plastic & Rubber; Metal and Allied; and Paper and Paper board.”
According to the private sector, the 35percent tariff rate is expected to have more impacts on revenue, trade creation, employment creation, and industrial production.