BITTER SWEET

New EAC common tariff to reduce citizen purchasing power - Deloitte

Deloitte noted that the welfare loss will be compensated by the more incomes earned from the additional employment opportunities.

In Summary

•The region has been pushing for the review of CET on products imported from non-member countries, to safeguard local products and boosting industrial growth.

•However, Deloitte noted that the welfare loss is expected to be compensated by the more incomes earned by the citizens from the additional employment opportunities.

Containers at the Port of Mombasa's Second Container Terminal/
Containers at the Port of Mombasa's Second Container Terminal/
Image: CHARLES MGHENYI

The adoption of 35 per cent maximum import duty rate will reduce citizen purchasing power, audit firm Deloitte has said.

The East African Community (EAC) Council of Ministers, on May 5, finally adopted the reviewed rate as the fourth band of the Common External Tariff (CET) following months of delay.

An analysis by Audit firm Deloitte shows that while the new rate will promote industrialization in the region, it will negatively impact the purchasing power of citizens.

"...an increase of 10 per cent points to 35 per cent is too high and will have a significant impact on prices of finished goods considering other domestic taxes which would affect the purchasing power of citizens," the firm said in its report.

However, Deloitte noted that the welfare loss is expected to be compensated by the more incomes earned by the citizens from the additional employment opportunities created through the expected growth in the local industries.

The region has been pushing for the review of CET on products imported from non-member countries, to safeguard local products and boosting industrial growth.

Currently, the EAC-CET is structured in 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.

Further, certain products considered to be of economic importance to the partner states attract duty rates of above 25 per cent including sugar, wheat, milk, textile products,maize, rice and cigarettes.

With the Council finally approving the maximum rate of 35 per cent on May 5, consumer welfare on products where the region is net importing. is expected to be safeguarded.

Products such as dairy and meat products textiles, iron, and steel  are protected by the CET.

The delay in concluding the review of the CET was mainly attributed to the lack of consensus amongst the partner states on the upper band rate.

Kenya, Uganda and Tanzania proposed 35 per cent while Burundi and Rwanda were for 30 per cent as a maximum CET rate.

According to the Sectoral Council on Trade, Industry, Finance and Investment (SCTIFI), the justification for the 35 per cent duty rate is based the percentage point gaps between 0% to 10%, 10% to 15% and 25% to 35% as ideal for promotion of value chains and industrial transformation in the region. 

The analysis by Deloitte also noted  that the promotion of local manufacturing, value addition and industrialization will boost realization of the benefits of the African Continental Free Trade Area (AfCFTA)through encouraging intra-regional trade.

"The review of the CET will also eliminate stays of application of the CET which have in the past distorted intra-EAC trade and undermined the credibility of the EAC CET," the report read.

The EAC Council allows for stays of application of the CET rates on certain products to enable the Partner States apply higher/lower import duty rates to protect local industries from competition arising from cheap imports or reduce the cost of inputs required by certain industries.