How tax harmonization in East Africa will attract investors
Arusha. The harmonization of domestic taxation in the East African Community (EAC) will attract more investment to the region if implemented.
This emerged during a webinar on national tax regimes and proposed measures for partner states’ 2022/23 budgets.
The executive director of the East African Business Council (EABC), John Bosco Kalisa, said removing tax distortions would lead to more efficient allocation of resources.
According to him, the EAC treaty obliges the partner states to harmonize their tax policies with a view to removing tax distortions and thereby ensuring a more efficient allocation of resources within the bloc.
The webinar organized by the EABC in partnership with PricewaterhouseCoopers (PwC) and Coca-Cola aimed to gather views from stakeholders ahead of the budget readings of Tanzania, Kenya, Uganda and Rwanda next month. The online conversation highlighted the differences between withholding taxes, value added tax (VAT) and excise duties in the now seven-nation EAC.
The standard VAT rate in Tanzania, Uganda and Rwanda is 18%, while Kenya is 16% and Zanzibar is 15%. Excise duties for telecommunications and banking vary among the EAC Partner States which are Tanzania, Uganda, Kenya, Burundi, Rwanda, South Sudan and DR Congo.
As part of the EAC Customs Union, partner states have agreed to apply harmonized tariffs on products imported from the rest of the world into the bloc. “This is implemented through the uniform application of the Common External Tariff (CET) of the East African Community,” said EABC Vice President Simon Kaheru.
He applauded the EAC ministers responsible for trade, industry, finance and investment who in April 2022 finally agreed on 35% as the maximum rate for the new four-band tariff structure. He further explained that EAC member countries have retained the mandate on internal taxes, namely: income tax, value added tax (VAT) and excise duties.
The freedom to develop and manage national taxes at the national level has, to some extent, resulted in huge differences between the tax systems of the EAC Partner States.
This has resulted in unfair tax competition and unequal treatment of taxpayers, goods and services in the region.
Mr. Adrian Njau, EABC Trade and Policy Advisor, said: “The EAC Double Taxation Avoidance Agreement agreed in 2010 has only been ratified by Uganda, Kenya and Rwanda”.
The delay in harmonizing internal taxes is due to the perceived risk of revenue loss and erosion of policy space for EAC member countries. This, according to Mr. Njau, adds to the long and bureaucratic harmonization process.
In the budget proposal for the next financial year 2022-23, Tanzanian companies propose a reduction in the rate of excise duty on telecom operators from 17% to 10% and an increase in the threshold for VAT registration to 200 million shillings (about $85,984).
Proposals in Kenya’s Finance Bill 2022 include an increase in the rate of capital gains tax from 5 to 15% and exemption from VAT on plant and machinery imported by manufacturers or contractors. investors in the manufacture of pharmaceutical products.
In Uganda, there are proposals to expand the VAT exemption scheme to include: assistive devices for persons with disabilities, the provision of airport user services charged by the CAA and the provision of oxygen for medical use, as well as a new investment of $5 million in any hospital. with the ability to provide specialized medical care.
In Rwanda currently there is a review of Pay As You Earn (PAYE) tapes and VAT on digital supply is to be introduced but with a transition period.