Business council cautions on domestic tax harmonisation
What you need to know:
Factor. Harmonisation of taxes is a challenge because of the different levels of economic development of each member state
Tax harmonisation across the East African Community (EAC) member States is the way to go if the countries in the bloc are to attain economic union, the East African Business Council (EABC) has said.
Currently, the countries’ huge disparities in tax administration and systems have had a negative effect on achieving principal freedoms enshrined in EAC customs union and common market.
In trying to rectify these disparities, experts from the member States have resumed discussion on how harmonisation of domestic taxes will be handled.
Speaking at the opening of the technical working group meeting in Arusha - Tanzania yesterday, the executive director EABC, Ms Lillian Awinja, said: “Tax harmonisation is an element that runs through all stages of EAC integration, including the EAC customs union, common market, monetary union and political federation.”
However, Ms Awinja said partner states have retained the mandate to freely decide on the domestic taxes.
Currently, Kenya, the region’s biggest economy, charges the lowest VAT rate at 16 per cent while Uganda and Rwanda charge 18 per cent, and Tanzania charges the highest of 20 per cent.
Mr Awinja said the EAC vision is stated as “to be a prosperous, competitive, secure, stable and politically united East Africa”.
The mission is “to widen and deepen economic, political, social and cultural integration in order to improve the quality of life of the people of East Africa through increased competitiveness, value addition production, trade and investment.
“However, outdated and incoherent national tax systems seriously reduce the possibility of realising this vision and mission,” she noted.
Mr Muhammed Ssempijja, a tax partner at Ernest and Young, in his view about the regional private sector reviving debate to harmonise domestic taxes by member countries, said: “Domestic tax harmonisation is desirable and a good thing because it will bring the real feel of a single market.”
He, however, said if domestic taxes are harmonised, some member States may be more attractive than others but this will be shortlived.
The Uganda Revenue Authority commissioner general, Ms Doris Akol, in an earlier interview with this newspaper, said each of the member States was still responsible on the way they administer domestic taxes.
“We are in full discussions on how to harmonise at the EAC and hopefully this will be in place when we have the monetary union in place,” Ms Akol said.
Tax experts argue that harmonisation of domestic taxes in the region is a challenge because of the different levels of economic development of each member State.
At an EAC tax harmonisation meeting held in Nairobi in May, Mr Nikhil Hira, a tax partner at Deloitte & Touche East Africa, said: “The possibility of harmonising rates is going to be very difficult because each country has its own domestic issues to deal with.”
Mr Hira further said given that Kenya is the major exporter to Uganda and Tanzania, under the Customs Union; these countries do not receive import duty for the goods.