New clothes traders face steep tax raise in bid to revive textile sector

Clothing and shoe traders could face a steep tax increase on imports in new proposals that are aimed at reviving the East African Community’s ailing textile and leather sectors.

The proposals to raise taxes by up to 50 per cent are included in a report that was commissioned on the two sectors by the EAC, and whose findings were presented to the region’s heads of state last week.  They seek to limit cheap imports that have undercut once vibrant local industries.

“… over the years, the clothing and shoe manufacturing industries have collapsed due to the emergence of informal sector trade in used clothes and shoes (UCS) and the impact of trade liberalization,” reads a policy brief  on the report that was submitted to the EAC heads of state.

East Africans spend an estimated Sh36.1 billion ($350 million) on second-hand clothes and shoes (mitumba) annually.

While the report endorses an existing proposal to ban mitumba, it also proposes a 40 per cent tax on “readymade garments or $5 per kg whichever is cheaper”. This implies that importers of new clothes would also be affected.

The report, authored by the EAC secretariat, proposes increasing the common external tariff (CET) on new shoes from 25 per cent to 50 per cent or $20 per pair (for leather shoes) and $5 per pair (for plastic shoes), whichever is higher.

A three-year tax waiver for textiles inputs and shoe manufacturing equipment that are not available locally has been proposed as is a ban on the export of raw hides and skins.

Kenya has already taken a U-turn on the proposals to ban mitumba despite ongoing negotiations at the EAC level on the issue.

There are also fears that a mitumba ban may see EAC countries deemed illegible to retain duty-free access to the United States under African Growth Opportunity Act (Agoa).