EAC tax harmonisation  efforts still poor - report

A digital tax stamp. Amendment of tax laws is done in isolation as individual partner states are more concerned about their sovereignty. Photo |  Rachhel Mabala

What you need to know:

  • A review of tax measures indicates that unlike the Common External Tariff, where amendments have to be approved at EAC level, domestic tax amendments are done in isolation.   

Despite having the same theme for the financial year 2021/2022 Budget, the six regional East African Community member states have not done much in harmonising their tax regime. This results into unnecessary trade competition which paves way for protectionism, which threatens regional integration.

This is according to a report titled: Analysis of Tax Measures in the East African Community Member States: Are we moving towards a harmonised tax system? 

The report which was presented yesterday during the post EAC Tax and Budget Dialogue FY 2021/22 in Kampala by the executive director of SEATINI Uganda, Ms Jane Nalunga on behalf of other Civil Society Organisations with regional presence among them EATGN-Kenya, Policy Forum Tanzania and Tax Justice Network Africa, further disclosed that there is limited effort to harmonise tax laws at regional level. 

A review of tax measures for 2018/19-2020/21 which the report quotes indicates that unlike the Common External Tariff (CET), where amendments have to be approved at EAC level, Domestic Tax amendments are done in isolation, something regional trade and investment analysts in the meeting referred to as problematic.  

“There are only a few cases when domestic tax laws are discussed at the EAC level such as in 2018, when partner states agreed not to levy VAT on some essential goods and services that are consumed domestically such as medical supplies and educational materials,” Ms Nalunga who is also a regional trade and investment expert noted while presenting the report. 

Further, the provisions on tax harmonisation in the EAC treaty are still very general, although the Director Economic Affairs at the Ministry of Finance, Mr Moses Kaggwa says this is a standard practice for treaties and it shouldn’t be a matter of contention.  

Importantly, the study carried over four to five years revealed that there is no political support with evident intra-community misunderstandings, hindering the integration success.

Also disturbing is the revelation that a draft code of conduct against harmful tax competition in the community was developed back in 2011 but little is being done in terms of implementing.  This is further worsened by the processes of amending tax laws which are done in isolation as individual partner states are more concerned about their sovereignty matters than community matters, in addition to fearing revenue loss.  

For Mr Abel Kagumire, the Commissioner Customs at Uganda Revenue Authority, tax harmonisation is as integration enabler, saying without it, regional integration is incomplete.

According to Mr Kaggwa, although the report points out many factual issues which as a ministry they agree with, some things such as the threshold for Pay As You Earn (PAYE), should be approached cautiously. 
In Uganda, whoever earns more than Shs231,0000 is eligible for PAYE and in Rwanda, it is half that. Mr Kaggwa believes everybody should contribute something to the tax kitty.

The EAC treaty contains provisions that specifically promote tax harmonisation in the region. Article 83(2)(e) provides for the harmonisation of domestic tax policies with a view to removing tax distortions to bring about a more efficient allocation of resources within the Community. 

Tax harmonisation                                
Some harmonisation has already been reached with regards to Value Added Tax (VAT). Excluding Kenya, all the other partner states have a standard VAT rate of 18 per cent although Kenya charges 16 per cent and a reduced rate of 8 per cent on petroleum oils.
Also all the regional countries have preferential treatment of exempting or zero rating of welfare support goods and services. 

However, differences in VAT law exist in the items listed under the exempt and zero rated schedules
But regarding excise tax rates, the structure is much more complex. Almost in every country a mixture of specific tax rates and ad valorem tax rates exist.

The mixture of specific and ad valorem bases within and in between member countries is a basic obstacle against a comparison of the tax burden on the goods being taxed. 

“Regional integration cannot be achieved without tax integration,” Ms Nalunga concluded before Civil Society Budget Advocacy Group executive director, Mr Julius Mukunda in a panel discussion, summed up saying: “Tax payers in the region need simple messages that make sense to them if integration is to pick up pace in a way we would want to see.”