Member States fail to fully effect new tariff rules

Businesspeople are still paying duty on goods that were supposed to be zero-rated from January 1, this year, after the commencement of a full-fledged East Africa Customs Union.

East African Community (EAC) officials said some members of the union had delayed implementation of resolutions and protocols that had already been signed.

Free movement

In particular, the full customs union protocol removing duties for goods entering member countries has not been effected by some members, thereby raising concerns that even the common market set for July 1, this year, might not be realised.

The five heads of state of the region’s member countries met in November, 2009, and signed a protocol for the union declaring that goods would no longer be taxed.

This was hailed as making the dream of a single regional market — with free movement of goods, capital and labour — realisable by the middle of the year.

While acknowledging that the community’s customs union implementation had progressed more slowly than expected, the EAC deputy secretary -general , Ms Beatrice Kiraso, said lack of a central political authority was one of the biggest hurdles facing the regional integration scheme.

“We don’t have an enforcement mechanism other than to ask the individual countries themselves to report to one another what they have done about the agreements they signed,” she told journalists at the EAC Secretariat at the headquarters of the community in Arusha.

At the Namanga border point, goods entering Tanzania from Kenya were being subjected to duty, with officials at the Tanzania Revenue Authority (TRA) saying they had not been advised not to charge tax. Exporters were being forced to submit documents showing payment of duty before their goods could be allowed to cross the border.

The same situation is said to apply on the Uganda-Kenya border in Malaba where customs officials are still applying duty on many exports and imports.

One case where an exporter attempted to apply the new protocol is that of General Motors (GM) which tried to sell trucks to Tanzania on the basis of the new protocol.

Officials from the company were reportedly instructed by TRA to pay duty or else they would not be allowed in.

TRA said it was not aware that the protocol was to be effective from January 1.

TRA fears loss of revenue if the protocol is fully implemented. Exports by Kenya into the region have increased since tariffs began coming down under EAC, as predicted by a 2004 World Bank study.

Tax revenue

The study concluded: “We see that elimination of Ugandan and Tanzanian tariffs on Kenyan imports would result—as expected—in higher increases of imports from Kenya. For Tanzania, the increase would be twice as large at 3.07 per cent; for Uganda, imports from Kenya increase by 6 per cent.”

The increases have been actually higher than this study predicted.

Kenya’s exports to EAC have expanded by Sh20 billion or 31 per cent to Sh84 billion in 2008 compared to 2004.

Although smaller in absolute terms, relative Kenyan imports from the region have risen by Sh10 billion or over 200 per cent during the same period to Sh13 billion.

With regard to Tanzania, Kenya exported Sh29 billion worth of goods in 2008 compared to only Sh17 billion in 2004 – meaning that it would have lost 25 per cent or about Sh7 billion (TSh120 billion) if it charged no duty on the same goods or about 2.4 per cent of the total tax revenue for the country for 2009/10.

On the other hand, Kenya — the region’s largest economy— would lose only Sh1.8 billion if the customs union denied it tax revenue due from imports from Tanzania.

GM’s general manager for regional integration, Mr Gerald Muli, said in an earlier meeting with journalists that some products, including vehicles, were not being allowed duty-free among the member countries of the EAC customs union.

“We need harmonised age limits and access for vehicles coming into member countries,” said Mr Muli.