EABC appeals for harmonised EAC countries’ domestic taxes

21May 2022
By Guardian Reporter
The Guardian
EABC appeals for harmonised EAC countries’ domestic taxes

​​​​​​​PARTNER states in the East African Community (EAC) need to harmonise domestic taxes to attract more investments into the region, the East African Business Council (EABC) has declared.

​​​​​​​John Kalisa, the EABC chief executive officer.

John Kalisa, the EABC chief executive officer, says such a measure is consonant with the treaty for establishment of the East African Community (EAC) as it obliges the partner states to harmonise their tax policies.

This is meant to remove tax distortions and enhance efficient allocation of investments within the trading block, he said, at a webinar on domestic tax regimes and proposed measures in the next financial year.

Sovereign design and management of domestic taxes has resulted in huge differences in tax systems of the partner states, unfair tax competition and unequal treatment of taxpayers as well as goods and services across the region, the chamber leader intoned.

EABC organised the webinar in liaison with PricewaterhouseCoopers (PwC), an accounting firm, shouldered by Coca-Cola (T) Ltd, to collect stakeholders’ views ahead of budget readings of the partner states, apart from Kenya which delivered its budget early to go into election season.

Participants pointed at differences in withholding, Value Added Tax (VAT) and excise taxes across the member states, where Tanzania Mainland, Uganda and Rwanda have a VAT standard rate pegged at 18 per cent, Kenya at 16 per cent and Zanzibar at 15 per cent.  Excise taxes for telecommunication services and bank transactions vary across the sub-region.

EABC vice chairman Simon Kaheru said that EAC Customs Union protocols since 2005 bring the partner states to apply harmonized customs duties, by uniform application of the Common External Tariff (CET).

EAC ministers responsible for trade, industry, finance and investment in April finally agreed on 35 per cent maximum rate in a four-band tariff structure, with the partner states retaining the mandate for income tax, VAT and excise duty. 

Adrian Njau, the chamber’s trade policy advisor said the EAC pact on double taxation enacted in 2010 has not been ratified by Tanzania, while Uganda, Kenya and Rwanda have done so.

Harmonisation of domestic taxes is perceived as carting a big risk of revenue loss and erosion of policy space for EAC partner states, apart from the arduous negotiations needed for each aspect in harmonising every taxation item.

For fiscal 2022/2023, Tanzania businesses are proposing excise duty rate on telecoms brought down from 17 per cent to 10 per cent and raising VAT registration threshold to 200m/- of output per year, participants noted.

The Kenyan Finance Bill 2022 increases the capital gains tax rate from 5.0 per cent to 15 per cent, while exempting VAT on plant and machinery in the manufacture of pharmaceuticals.

In Uganda, there are proposals for expansion of VAT exemption regime to include: assistive devices for persons with disabilities, supply of airport user services charged by civil aviation authorities, the supply of oxygen for medical use and new investment of $5m in any specialised hospital.

Rwanda had conducted a review of Pay As You Earn (PAYE) bands, while VAT on digital service providers is expected with a transitional period proviso, they added.

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