Goods transporters queue for clearance at the Kenya-Uganda border at Malaba town. An additional one per cent levy will push up import costs. FILE
What you need to know:
EAC's council of ministers has directed member states to consider levying one per cent import duty on goods from non-member states.
The five East African states want to introduce a levy on imports to finance the secretariat’s operations, reducing the reliance on donations and subscriptions in the trading bloc’s budget. The region’s council of ministers has directed member states to consider levying one per cent import duty on goods from non-member states ahead of its next meeting in November.
“The Council directed the Partner States to consult further on the proposal that the budget of EAC be financed from one per cent of the value of imports from outside EAC,” the council of ministers said in a statement released Tuesday following its ordinary session in Arusha, Tanzania, over the weekend.
If approved by the heads of state summit, prices of goods shipped in from outside Burundi, Kenya, Rwanda, Tanzania and Uganda would be at least one per cent more expensive.
For Kenya where most of essential goods now attract value added tax after the government scrapped previous exemptions, a proposal to load another levy at regional level is likely to spark sharp reaction from consumers.
The additional one per cent levy would push up the prices for imports — including inputs for making essential commodities — up by at least 5 per cent.
The Consumer Federation of Kenya (Cofek) has objected to the proposal, saying imposing uniform tax burden could deepen inequalities among the members and eventually discourage foreign direct investments.
“This proposal is ill-timed and ill-informed for a region that is already uncompetitive for business,” says Cofek secretary-general Stephen Mutoro.
If Kenya were to impose the one per cent tax on its non-EAC imports, which hit Sh1.269 trillion last year, a total of Sh12.69 billion would be raised for the bloc.
A similar tax (at two per cent of imports from outside the continent) was initially floated by the African Union ministers last year but was shelved after delegates raised fears that such a levy could herald inflation.
“In Kenya, we are not ready for another tax burden on consumer alongside the dangerous experiment with VAT law,” Mr Mutoro told the Business Daily.
Despite its decade old campaign to reduce the foreign funds in its budget, external financing as a component of the EAC budget, grew from 52 per cent in 2012/13 to 68.2 per cent in the current financial year.
The five members have only committed $37.2 million (Sh3.16 billion) to the 2013/14 budget against a target of Sh10 billion. Members led by Kenya still hold billions of shillings in arrears rolled over from previous years.
The 2013/4 budget factors in external financing of Sh6.8 billion ($79.8 million) and another Sh1.75 billion ($205,850) “from other sources”.
“The “other sources” may just be donors who come on board in an ad hoc basis,” says Mr Richard Sindiga, Kenya’s EAC department’s head of economic affairs division.
Despite relying on external financing for its upkeep, the East African Legislative Assembly has said the dependency allows foreigners to control the integration agenda. The EU is currently the EAC’s biggest financier.
