The sluggish implementation of agreed taxation regulations and strict trading practices are once again forcing a decline in intra-regional trade in East Africa, costing the sub-continent’s economy millions of dollars.
According to a recent regional trade analysis, authorities have agreed on important policies but postponed their implementation. As a result, member states of the East African Community regularly violate the Common Market Protocol and work against regional integration goals by imposing non-tariff trade barriers (NTBs) and making recurrent requests for special tax treatment and exemptions.
Based on the East African Business Council's (EABC) Intra-EAC Trade Brief Analysis report, trade between EAC member states decreased by more than 33 percent ($1.8 billion), to $3.6 billion in 2022 from $5.4 billion in 2021.
As seen by the study obtained by The EastAfrican, a news publication focused on news articles for East Africa, trade in grains, plummeted to $285.5 million from $607.2 million at the same time, and trade in mineral fuels, fell to $175.1 million from $618.2 million, had the biggest impacts on intra-EAC commerce. Sorghum and rice commerce fell, however maize exports surged by 63%, from $114.6 million to $187.1 million.
According to EABC, additional significant barriers to thriving regional commerce include restrictive trade practices, inability to fully apply the new Common External Tariff (CET), high costs of doing business, excessive reliance on foreign currencies, and rain-fed agriculture.
Others include the knock-on consequences of global shocks that have increased food insecurity by stymieing the supply of essential goods like wheat, gasoline, and fertilizer.
The Kenya Association of Manufacturers (KAM) criticized Kenya's 2022 decision to remove the import charge on edible oil, which was made in violation of the EAC's common external tariff guidelines.
To end partner states' frequent use of stays of applications and to encourage intra-regional commerce, investments, and job growth, the EAC established a new four-band tariff system that went into effect on July 1, 2022.
In accordance with the amended tariff system, intermediate items that are unavailable in the EAC area are subject to a 10% tax. At the same time, capital goods and raw materials are exempt from import duties. While imported finished goods are subject to a 35% import charge, regionally accessible intermediate products are subject to a 25% tariff.
Sensitive goods are subject to a tariff that is greater than 35%. The 35% levy on completed goods, according to the EAC Secretariat, has the potential to increase intra-EAC trade by $18.9 million, create 6,781 jobs, and increase tax revenues for EA by 5.5 percent.
From August 31 to September 1, the EABC will hold a forum in Kampala to promote regional integration and greater intra-EAC commerce. It will mobilize opposition to the removal of trade and investment restrictions. For instance, Ugandan milk is cheaper in Kenya due to reduced production costs, which has prompted President Yoweri Museveni's administration to look for new markets in North and West Africa.
Almost all EAC member nations want tax favors to defend their industry when it comes to preferential tax treatment. Tanzania, for instance, has asked for a delay in the application of the regional CET rate of 50%. Dar will continue to impose a duty rate of 35% on vintage fabric for a year, while Uganda will similarly postpone zero-rating and impose a duty rate of 10% on mobile phones for a year.
Kenya, on the other hand, will continue to use the EAC CET rate of zero percent and would impose a 25 percent tax rate on mobile phones for a year.