TAX MEASURES

EAC states adopt import duty measures to boost local production

This comes amid effects of Covid-19 to economies

In Summary

•The new import tax changes for the current fiscal year are effective July 1.

•The decisions to stay application of the EAC CET rate and apply a higher duty rate are aimed at stimulating local production and safeguarding markets against cheap imports.

Presidents Uhuru Kenyatta and John Magufuli (Tanzania) in Uganda during a past EAC Summit./FILE
WORKING TOGETHER: Presidents Uhuru Kenyatta and John Magufuli (Tanzania) in Uganda during a past EAC Summit./FILE
Image: PSCU

East African Community (EAC) partner states—Kenya, Burundi, Rwanda, Tanzania and Uganda have adopted measures on Common External Tariff (CET) to boost local production in the region.

The new import tax changes for the current fiscal year are effective July 1.

They were approved during a pre-budget consultations by the region's Ministers, Cabinet Secretary of Finance, held via video conference on May 13, 2020.

 

The EAC Ministers have been holding the pre-budget consultations prior to reading the National budgets as a way of harmonizing fiscal measures in the region.

The decisions of the Ministers/Cabinet Secretary for Finance on the CET measures were finally endorsed by the meeting of the Sectoral Council on Trade, Industry, Finance and Investment (SCTIFI) on June 3.

The EAC CET is currently structured under three bands of 25 per cent for finished goods, 10 per cent for intermediate goods and zero per cent for raw materials and capital goods.

In addition, there are a limited number of products under the sensitive list that attract rates above the maximum rate of 25 per cent whereby they range from 35 per cent to 100 per cent.

For instance, Kenya will maintain application of the EAC CET rate of 25 per cent and apply a duty rate of 25 per cent on margarine; edible mixtures, for one year.

It has assigned articles of apparel and clothing accessories, knitted or crocheted and articles of apparel and clothing accessories, not knitted or crocheted, as sensitive for Kenya for one year.

It will apply a duty rate of 35 per cent for one year.

 
 

The import duty measures in the EAC Gazette which was issued on June 30, 2020 can be put into three main categories which are Duty Remission for Industrial Inputs, Stays of Application, and Amendments of the East African Community Customs Management Act, 2004.

“The duty remission measures adopted by the EAC Partner States will ensure that local manufacturers can import raw materials and inputs which are not available in the region at a lower rate,” East African Business Council executive director Peter Mathuki said in a statement.

The duty remission measures are strictly specific for the gazetted manufacturers who have applied for the importation of a specific amount of input, product at the reduced import duty rate.

The stays of application measures that are instituted on final products are reported in two scenarios.

First, where EAC partner states agreed to stay application of the EAC CET rate and apply a higher duty rate for the imported products.

The second scenario is where EAC partner states agreed to stay application of the EAC CET rate and apply a lower duty rate for imported products.

The decisions to stay application of the EAC CET rate and apply a higher duty rate are aiming at stimulating local production by safeguarding manufacturing of that particular product against similar cheap imports.

Some of the products include textile (garments) and textile products; leather (shoes) and leather products, edible oil; tiles, processed tea, coffee and cocoa,meat and meat products and steel articles, iron and metal products.

Applying a lower duty rate is informed by the fact that the region has no sufficient capacity to produce particular products, hence the need to protect East Africans against a higher import duty.

Staying of application has also been applied to a few products such as mobile phones, rice in the husk, semi milled or wholly milled rice, sugar, wheat, and barley.

Analysis indicates that the existence of the stays of application and country’s specific duty remission in the current EAC Gazette aims at cushioning vulnerable sectors or products, protect local industries as well as enhance local manufacturing and production for those products that the EAC region has the capacity to produce.

Since most of EAC partner states opted for stay of application of the EAC CET and applied higher duty rates ranging from 35 per cent to 60 per cent, it gives a positive indication that the region may soon conclude the comprehensive review of EAC CETs,” Mathuki said.

“Countries have shown some commonalities on the maximum tariff or the level of protection they require,' he added.

However, he said, one of the critical challenges arising from the existence of numerous stays of application and country’s duty remission is an impediment to the intra-EAC trade as the finished products that benefit from these measures cannot access the regional market at preferential tariff treatment.

This is due to the fact that all finished products which benefit from the Country’s Duty Remission once sold in the EAC customs territory attract duties, levies and other charges provided in the EAC CET.

“Furthermore, these measures erode the EAC CET as a uniform policy against imported products into EAC market,” the regional business lobby group notes.

EABC has urged EAC member states to fast track the finalization of the comprehensive review of the EAC CET so that all countries can uniformly apply the new agreed CET.

The EAC CET is considered as a very important instrument of EAC Customs Protocol as it reflects the trade relations between member states and the rest of the World, with regards to the import duties charged on imported products into the region.

Implementation of the EAC CET commenced in 2005 after the EAC Customs Union Protocol came into force.