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Tanzania takes lead in EAC cross-border trade

16th April 2012
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Tanzania leads in cross-border trade among the partner states of the East African Community, according to the newly launched 'Doing Business in the EAC Report 2012'.

The report shows that nearly 20,000 tonnes, equivalent to 80 per cent of the maize traded in Kenya originated from Tanzania through the Namanga border market.

The amount was traded between May and October last year, according to report.

The joint report by the World Bank and International Finance Corporation (IFC) also showed the five countries of the East Africa Community (EAC) implemented a combined 10 regulatory reforms across nine areas.

The report however called upon countries in the region to ensure that they lower taxes and simplify administration processes in the region.

In the report the Bank stated that businesses in Kenya are the most heavily taxed in EAC, with up to 49.6 per cent of the profits going to tax.

In Rwanda tax takes 31.3 per cent of the profits, Uganda 35.7 per cent, Tanzania 45.5 per cent while Burundi government demands 46.2 per cent of the gains. This could keep investors out of the region as studies have shown that higher tax rates are associated with fewer formal businesses and lower private investment.

Citing examples, the report said, a 10 per cent increase in the effective corporate income tax rate is associated with a reduction in the ratio of investment to gross domestic product (GDP) of up to two per cent points and a decrease in the business entry rate of about one percentage point.

It further stated: "Keeping tax rates at a reasonable level can encourage the development of the private sector and the formalisation of businesses. This is particularly important for small and medium-size enterprises, which contribute to growth and job creation but do not add significantly to tax revenue.”

The number of payments also could discourage investors as too much time is wasted in the system.

Kenya has 41 different types of payments that have to be made annually.

Tanzania is worse with 46 payments, but Rwanda, Burundi and Uganda have been doing better with 18, 24, 32 payments respectively.

"The number of payments indicates the frequency with which the company has to file and pay different types of taxes and contributions."

While it takes 393 hours to comply with the tax payments in Kenya, it takes only 148 hours in Rwanda.

The EAC ranks 106th globally, on the paying taxes indicator, falling behind the Southern African Development Community (SADC) at 91st position and the Common Market for Eastern and Southern Africa (COMESA) at 90th.

In 2008, Kenya committed to lowering the burden of tax compliance on companies with the implementation of electronic filing for VAT through the Kenya Revenue Authority's online portal.

However, VAT payments still require visiting a bank, minimising the efficiency of e-filing.

"To start a business in the EAC now requires an average of 10 procedures and costs an average of 55 per cent of income per capita, compared to 12 procedures and a cost of 140 per cent of income per capita 7 years ago, in 2005," said the joint report.

SOURCE: THE GUARDIAN
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