COVID-19

Business community calls for regional tax breaks

Wants corporate tax reduced to 20 per cent across the region

In Summary

•Value Added Tax rate should also come down to at least 12 per cent during the Covid–19 period.

•Wants removal of Import Declaration Fees(IDF) and Railway Development Levy (RDL) for imports of raw materials, capital goods, intermediate goods and essential goods.

Long distance trucks parked on the Uganda side of its border with Kenya.
BORDER SHUT: Long distance trucks parked on the Uganda side of its border with Kenya.
Image: EMOJONG OSERE

East African Community(EAC) member states should reduce corporate tax rate to 20 per cent across the region to cushion businesses from financial strains, the East Africa Business Council (EABC) has said.

Value Added Tax rate should also come down to at least 12 per cent during the Covid–19 period.

The regional apex body of private sector associations and corporates has further called for removal of Import Declaration Fees(IDF) and Railway Development Levy (RDL) for imports of raw materials, capital goods, intermediate goods and essential goods.

This, EABC chief executive Peter Mathuki says will help cushion traders and importers in the wake of falling imports and exports both in the international markets and at regional level.

“Trade-in goods and services are being affected by the pandemic,” Mathuki said.

Kenya has so far reduced corporate tax from 30 per cent, which has been standard across the region, to 25 per cent.

It also has the least VAT chargeable at 16 per cent compared to Uganda, Tanzania and Rwanda which have been charging 18 per cent.

The countries however have exemptions and zero rating for some commodities and services.

In support of manufacturers and investors, EAC partner states should allocate enough funds to cater for outstanding VAT refunds and domestic debts, which will boost liquidity in the economy.

Kenya and Rwanda are among those that have allocated funds for VAT refunds and pending bills owed to suppliers.

“Central banks need to lower Central Bank Rate and extend lending facility to commercial banks,” Mathuki said.

This is similar to the Central Bank of Kenya's move in March which reduced the Cash Reserve Ratio (CRR) to 4.25 per cent from 5.25 per cent, freeing up Sh35.2 billion additional liquidity to banks for direct support to borrowers in distress as a result of the coronavirus.

EABC also wants regional states to consider granting an extension to businesses in filing their tax returns (Value Added Tax, Pay as You Earn, Excise Duty and Withholding Tax).

“EAC partner states should consider temporary removal of employment taxes or levies (Skill Development Levies),” EABC notes, affirming its commitment in advocating for improved trade regulatory environments in the EAC region.

The region has witnessed slow cross-border movement, dwindling trade and falling economic growth in the wake of the coronavirus.

EAC trade accounts for about 50 per cent of the Gross Domestic Product of the EAC economies.

The estimated import and export values for 2019 are $ 37.2 billion and $ 18.5 billion respectively. Total Intra-EAC trade was at $ 5.9 billion in 2018.

In the wake of Covid-19,Ugandan exports for instance have declined from $ 383.62 million in January 2020 to $ 352.91 million in February  and imports have declined from $ 711.99 million in January 2020 to $ 593.79 million in March.

In the floriculture sub-sector, before Covid-19, Kenya was exporting 30,000 metric tonnes of flowers per week.

Currently, the industry is exporting 12,000 tonnes.