East African states have ceded ground in their push for uniform taxes, a shift that would see members initially retain different domestic levies in a single customs territory (SCT).
Insiders said the latest round of negotiations had focused on setting specific limits within which domestic rates would have to fall to boost fair competition.
“We may end up with different tax laws, but have to agree on specific margins for the single customs territory,” John Njiraini, commissioner-general of Kenya Revenue Authority, said in Nairobi on Monday as the agency launched its Taxpayer’s Week.
“The ultimate aim of the single customs territory, however, is to have a common law that ensures that the region has uniform rates and administration system for internal taxes,” he added.
The region has been pushing to harmonise its domestic taxes since 2005 without much progress. Kenya, Uganda and Rwanda are currently piloting a SCT, but each state has kept its domestic taxes intact.
The five East African Community states initially announced plans to launch the region’s single customs territory next month, but this has since been pushed to April 2015 after individual member states failed to cede ground on domestic taxes.
Among the taxes that the states want to make uniform are VAT and excise rates as well as preferential taxes extended to bilateral trade partners.
Despite seven years of negotiation, Uganda, Rwanda and Burundi are still levying VAT at a rate of 18 per cent while Kenya and Tanzania charge 16 and 20 per cent respectively. Income tax in the region also averages 30 per cent except for Burundi, where it is at 35 per cent.
The types of taxes set for harmonisation are rates and bases for charging excise tax, valuation techniques and tax auditing methods.
Officials have also cited new taxes such as tourism levy that Kenya introduced this financial year despite opposition from states like Tanzania which do not have a similar tax.
“All the five EAC states have agreed to conclude negotiations on the single customs territory by April. By principle, all the states are willing to have a harmonised tax regime,” said EAC Affairs minister Phyllis Kandie.
Ms Kandle who currently chairs EAC Council of ministers said the ministerial team working on the tax harmonisation has a tight deadline to finalise negotiations by April.