A broken tax system may be affecting trade in East Africa

An uneven levy system may be hindering trade in the East African Bloc.
The levy system is particularly detrimental to lower-income countries such as Burundi and South Sudan.
This has sparked the conversation on harmonizing excise taxes to avoid trade conflicts.

By levying an uneven excise charge, Kenya, Uganda, Rwanda, and Tanzania may deprive smaller EAC economies of a shot at regional commerce.

According to research on discriminatory taxes in the East African Community, Burundi and South Sudan, which have smaller economies than the other four EAC members, have been unable to make decent sales in the area due to the irregular excise.

Excise tax is levied in East Africa on commodities created in a partner country by a licensed manufacturer, services provided in the partner country by a licensed person, and items imported into the partner countries.

Bottled water, soft drinks, cigarettes, alcohol, gasoline, and motor vehicles are all excisable commodities.

The research, commissioned by the East African Business Council (EABC) and financed by Trade Mark Africa and the Netherlands, found that governments in EAC partner states violated Article 15:2 of the EAC Customs Union Protocol by imposing different levies each fiscal year.

According to the protocol: “No partner state shall impose, directly or indirectly, on the products of other partner states any internal taxation of any kind in excess of that imposed, directly or indirectly, on similar domestic products.”

EABC CEO John Bosco Kalisa emphasized the importance of EAC governments harmonizing excise taxes to avoid trade conflicts.

“The Protocol on the Establishment of the EAC clearly defines excise duty as a non-discriminative duty imposed by partner state on locally produced or similar imported goods,” he said.

“Illicit trade, which occurs through the smuggling of excisable goods, presence of counterfeit products and tax stamps, or through the diversion of export products into the local market, may thrive,” he added.

Tanzania, Uganda, Rwanda, and Kenya have come under scrutiny for levying and changing various excise duties without consultations each year, impeding the free movement of products, services, capital, and employees.

“There is also a general alignment among all respondents that excise duty is charged on a large number of goods and services that are not deemed “luxurious” such as financial services, telecommunication products and services, imported pasta, imported potatoes, imported onions, and imported phones, among others,” the draft study report that was released last week reveals.