A fall in import tax collections in the last nine months has raised eyebrows in East Africa, pushing national revenue agencies to the overdrive as they seek to seal leakage loopholes and increase efficiency.
All the East African Community (EAC) states have missed their import duty collection targets in the nine months to March with Kenya, the biggest of the economies, recording Sh65.8 billion against an expectation of Sh70 billion.
Official data shows that both the dry and wet cargo import volumes fell in the nine months, causing a cumulative effect even on consumption taxes.
Following a meeting in Burundi last week, tax bosses from Kenya, Uganda, Rwanda, Tanzania, Burundi and South Sudan have agreed to implement a uniform system for valuing imports.
This means that the customs authorities in the EAC would use the same formula in determining the value of goods coming into the bloc and by extension impose similar duties.
“… the [commissioner generals] directed the establishment of a common valuation approach in order to ensure maximisation of revenue mobilisation opportunities through sealing loopholes that permit cargo undervaluation,” said a communiqué released after the meeting.
Common valuation is a requirement of effective operation of a Customs Union. However, despite the existence of a Common External Tariff, member states are yet to implement it.
This means the EAC members are currently playing into the hands of tax evaders by levying different absolute amounts.
The countries also agreed to harmonise cargo scanning mechanisms to align them with the Kenyan model. The Kenya Revenue Authority (KRA) automatically flags goods from ‘suspicious source countries’ for assessment by customs officers.
The taxmen pledged closer cooperation and co-ordination to boost revenue collection.
Already, Kenya, Uganda, and Rwanda are working together on a cargo tracking project.
Goods are monitored during transportation in the region to guard against cargo diversion, which results in tax revenue losses.
The common platform had enabled the RAs (regional authorities) in the three countries to effectively combat transit cargo diversion given the platform’s capability to allow simultaneous tracking and real-time communication between tracking and enforcement teams in different countries,” said the communiqué.
The tax authorities recommended the cargo tracking system be extended to South Sudan, Tanzania and Burundi. They also approved the development of a common ICT platform for customs management in the bloc.
The meeting also touched on tax avoidance by corporates by exploiting gaps in tax regulation and shifting income to low or no tax jurisdictions.
The six countries vowed to join the Inclusive Framework, a grouping of more than 100 nations under the Organisation for Economic Co-operation and Development (OECD) that are working to combat these tax avoidance strategies, also known as base erosion and profit shifting.
“As a first step, the [commissioners general] agreed to establish effective structures to support international taxation within their [revenue authorities] and to nurture the relevant expertise to help in confronting the challenge,” said the communiqué.
Kenya is already a member of the OECD. The member countries monitor different legal frameworks to counter profit shifting.