Tax harmonisation central to development
Posted Tuesday, November 22 2011 at 00:00
Tax harmonisation stands to benefit not just the business community but the entire country.
Since the signing of the treaty for the establishment of the East African Community (EAC) in November 1999 and its enforcement in July 2000, important strides have been made towards the integration of the EAC.
Last year, the EAC entered the critical stage, becoming a fully-fledged Customs Union. With this transition, came the imperative among all partner states to eliminate internal tariffs and uniformly apply the Common External Tariff (CET), a watershed that would usher in the new era of a common market.
The progress achieved keeps alive the long-held dream for a unified East African economic bloc. The collective and individual opportunities that a common market, would create for partner states do not need belaboring. Ugandans today clearly appreciate that the creation of an EAC common market would create a 150 million strong market, whose full potential will easily rival even the largest economies in Africa – South Africa, Egypt, Morocco and Nigeria.
Yet the most critical issue which may hamper the realization of the EAC integration process is tax harmonisation between the Partner States. Tax harmonisation involves the formulation of uniform tax structures and agreeing on common sets of internal taxes.
In the context of a common market, tax harmonisation can be said to refer to the coordination of the taxation systems of the member states for the purpose of preventing any national tax measures that could have a negative effect on the functioning of the common market which could distort competition.
While achieving similar tax rates are desirable among partner states, this tends to be a more difficult objective to achieve. In the East African context, it can be expected that similar tax rates will feasibly be a long, rather than short-term objective.
What the EAC Partner states can aim for in the short term, nevertheless, is a common tax structure across the three markets, and this applies to Uganda, as it applies to other EAC states. What is key today, among all EAC states is to harness the momentum so far achieved towards integration, and taking advantage of every platform to advance this cause.
Such is the opportunity provided by the Public Private Dialogue (PPD) for the Harmonisation of Domestic Taxes in the EAC, jointly hosted by the EAC and the East African Business Council last week (11-12 November) in Dar-es-Salaam. Following the PPD, a number of priorities are quite clear.
Top among these is the ratification and operationalization of the Double Taxation Agreement (DTA), the finalization of the Excise Management Bill and institutionalization of the tax harmonization under the Fiscal Committee of the EAC.
These would be preceded by EAC studies to evaluate the impact of harmonization on excise duty structures, and identify areas of income tax that require harmonization as the basis for developing flexible income tax procedures and a consensual national policy framework for tax reforms that would eventually convergence at regional level.
These priorities set a clear policy agenda for Uganda and its EAC partners – the establishment of tax regime that will ensure tax neutrality among EAC partner states. While harmonisation of taxes should not be understood to mean equalisation in the first instance, it is imperative that EAC Partner States, including Uganda, set a clear tax policy if the indirect tax regimes are not to interfere with the implementation of the Common Market.
In this regard, the tax harmonisation debate should be treated with a healthy degree of circumspection by our leaders from the public and the private sector, the business community, civil society as well the media. Effort should be expended towards educating members of the public on the importance of this noble initiative. This is because the benefits of tax harmonisation stand to benefit not only the business community but also all Ugandans at large.
Firstly, tax harmonisation will lead to the creation of a real common market in line with the East Africa Common Market Protocol. For the Uganda business community, the EAC Common Market will represent an attractive and critical market for the manufacturing and sale of goods and services to a significantly expanded market. Considering Uganda’s steady progression towards a new economic phase, with the discovery of oil in the country, a lot of effort should be geared towards tapping the already accessible EAC market, which would in turn benefit from Uganda’s oil industry.
Secondly, tax harmonisation will help in eliminating tax competition amongst Partner States thereby reducing suspicion amongst members of the EAC. This will go a long way towards making Uganda achieve optimum tax revenue which would enable the country to provide a desirable level of public goods and services to its citizenry, while gaining access to the other EAC markets.
Thirdly, as a landlocked country, we are set to reap the benefits from tax harmonization by reducing the cost of goods and services coming to Uganda which, in the long-run, will benefit the citizens of this country. This will also lead to the streamlining of import/export processes and make Uganda more competitive.