Taxes to stay in Common Market

Kampala

Uganda’s tax authority yesterday dismissed the notion among local manufacturers that they are no longer required to pay taxes for goods sold within East Africa after the region’s Common Market protocol became operational on July 1.

Addressing journalists at the Uganda Revenue Authority headquarters in Kampala, Mr Peter Malinga, the Commissioner in charge of Customs at URA, said the only tax that the local manufacturers are exempted from is Import Duty on goods manufactured within East Africa.

Other taxes...
“We have removed Import Duty for goods that originate from East Africa,” he said. “Any other taxes due on the goods, for example VAT [Value Added Tax], Excise Duty, Withholding tax where applicable, are payable.”

Mr Malinga added that Import Duty- exempt good must, however, first fulfill the originating status in accordance with the provisions of the East African Community Customs Union Rules of Origin in order to qualify for Import Duty free importation.
For goods to qualify for preferential tariff treatment, Mr Malinga said, the prime evidence is an EAC Certificate of Origin issued by a competent authority designated by each partner state. He, however, said Uganda is yet to harmonise the issuance of a certificate of origin like other countries in the region have done, a situation he said could be taken advantage of by unscrupulous business persons. “It is customs departments which have now been directed to issue certificates of origin. Uganda is yet to come on board,” he said. “Our certificates of origin are still being issued by the Uganda Export Promotion Board.”

Harmonisation
Mr Malinga also explained that goods imported from outside the East African region will attract all taxes they are expected to, unless they have undergone manufacturing in any of the partner states. He said the provision qualifies the manufactured goods as originating from East Africa, in accordance with the criteria set out in the EAC Customs Union Rules of Origin manual.

Explaining the ongoing tax harmonisation, Mr Malinga said the five East Africa countries are not yet in position to apply the same rates although the Common Market became operational on July 1. Consequently, they will continue to use the Common External Tariff, which has been used since 2005 to provide guidelines on the rates charged by all EAC countries on internationally traded goods.

Mr Malinga said VAT and Excise Duty on goods imported from partner states will continue to be applied based on respective national legislations because they are yet to be harmonised. “Discussions on harmonisation of VAT and Excise Duty are ongoing. For example VAT is 18 per cent in Uganda, Tanzania, Rwanda and Burundi, while it is at 16 per cent in Kenya. Excise Duty rates in the partner states are also different,” he said.

“Harmonisation of the taxation laws, rules and regulations of the five East African countries is a definite necessity if the Common Market is to be fully realised.”
Excise Duty is the tax levied on the manufacture, sale or use of locally produced goods like alcoholic drinks or tobacco products while withholding tax is levied by a country of source on income paid, usually on dividends remitted to the home country of the firm operating in a foreign country. Import Duty is a tax levied on goods imported into the country.

Revenue impact
Mr Malinga noted that the Import Duty exemption will not have a negative impact on Uganda’s revenue collections because the majority of the tax revenue is got from domestic taxes. “When we started the customs union on January 5, 2005, many of us were scared because we were going to lose Shs80 billion per year. But instead we got more revenue until recently when the international environment changed. Internally, we expect industries, business to build up from our partner states and then the internal taxes build up from there.”

Besides the proposed harmonisation of internal taxes such as VAT and Excise Duty, other issues still under discussion among member states include whether goods should circulate freely within the Common Market once taxes have been collected at the first point of entry into the regions.

Still in offing
Others are the harmonisation of other government policies that impact on the free movement of goods, labour, services and capital, as well as whether to have a centralised system of revenue collection and mechanism to share the centrally collected revenue or maintain the current system.

The commencement of the East African Common Market on July 1 allows the free movement of labour, capital and services within the five countries of the region. It builds on the East African Customs Union, which came into operation on January 1, 2005 but hitherto only allowed free movement of goods. When the Common Market is eventually fully operational, all restrictions – including the taxes that URA will continue to levy – will be done away with.