Economy

EAC budget levy signals higher cost of imports

SUMM

President Uhuru Kenyatta and other Heads of State from the East African Community at the recent EAC Summit in Arusha. PHOTO | SAMUEL MIRING'U

The cost of imported goods looks set to rise as the East Africa Heads of State agreed on a new import levy to finance secretariat operations which have long been hit by unreliable donations and member subscriptions.

The Heads of State on Wednesday called for the conclusion of a more sustainable financing plan for the EAC budget.

“The summit directed the council to finalise the work on the modalities required to establish a sustainable financing mechanism for the East African Community based on various options, including a hybrid of a levy and equal contribution with a commitment to increase the budget, that encompasses the principles of equity, solidarity and equality, and submit a report to the next summit for consideration,” they said in a joint communiqué that followed the 17th EAC Heads of State Summit in Arusha.

The region’s council of ministers has previously proposed that member states should consider levying one per cent import duty on goods from non-member states.

The push for a new levy could come with pain for consumers in Kenya and other EAC countries where most of essential goods attract value added tax (VAT) after governments scrapped previous exemptions.

Consumers in Kenya are already subjected to the recently introduced 1.5 per cent railway development levy (RDL) and the 2.5 per cent import declaration fee charged by the Kenya Revenue Authority (KRA).

READ: Kenyans bear brunt of increase in taxes amid rising cost of living

The additional one per cent levy would push up the prices for imports — including inputs for making essential commodities.

Kenya in 2014 unsuccessfully tried to impose the RDL on all imports passing through the port of Mombasa.

The KRA was forced to review the RDL collections after regional traders filed a complaint with the EAC Council of Ministers citing breaches to the regional common market protocol.

A regional lobby group, the East African Business Council (EABC), argued that the 1.5 per cent levy imposed on imports was inconsistent with the EAC Customs Union Protocol, because it is a charge of equivalent effect that partner states agreed to remove.

The customs union protocol enables goods produced within the region to be sold across the borders without duty while imports from non-EAC states are subjected to a three-band common external tariff structure.

Raw materials attract no duty, intermediate goods are charged at 10 per cent while finished products are allowed into the region at 25 per cent tariff.

Kenyan traders further said the RDL, which KRA imposed on top of other levies such as the 2.5 per cent import declaration fee, was tilting the competition landscape in the shared market in favour of their neighbours.

KRA gave in to the pressure in early March 2014 and ordered all its officers to stop imposing levy on goods entering Kenya from the other four member states of the EAC.