Covid-19 lockdowns, differences in tax policies complicates trade in EAC bloc

Other tax challenges

The protocol for the establishment of the EAC Customs Union provides for the Common External Tariff (CET) as one of the pillars of the Customs Union.

Established in 2004, the CET was designed to provide a stable, transparent and predictable trade regime, in order to enhance domestic production, attract investment and create a uniform trade policy across the region.

The CET gives a minimum rate of 0% duty levied on imports of raw materials and capital goods; a middle rate of 10% duty charged on imports of intermediate goods; a maximum rate of 25% levied on imports of finished goods and rates of duty ranging from 35-100% for sensitive products.

However, tax experts, private sector and government agreed during the June 23 dialogue in Kampala that not all is well because of the challenges that the CET has encountered over the years.

Ocailap, said the challenges include; inadequate protection for domestic industries, the lack of a comprehensive and cohesive trade and industrial policy in the region and partner states maintaining a degree of fiscal and policy space to make policies and decisions which have an adverse impact on the CET.

The others are; persistence of non-tariff measures and barriers, multiple memberships of the partner states in different blocs, inadequate institutional and regulatory frameworks at regional level to support the implementation of the CET.

In addition to these challenges, there are external factors – globalisation and increased trade protectionism around the world.

These challenges are not new. Ocailap said, negotiations among partner states are on-going to undertake a comprehensive review of the CET.

So far, he said, the partner states have agreed to use a revised four band structure, rather than the current three band structure, consisting of 0% for raw materials and other inputs, 10% for intermediate inputs, 25% for finished goods not readily available in the region and a higher band above 25% for finished goods readily available in the region.

However, there is no consensus on the rate above 25 % as the proposed rates are 30% or 35%.

These rates of duty align with the overarching policy goals of industrialisation, employment, wealth creation and inclusive growth.

Meanwhile, Ocailap said, the Customs Management Act of 2004 is being reviewed to take into account the developments in trade and the regional development goals and objectives.

COVID disrupts trade

This development comes at the time statistics from the Bank of Uganda indicates that the country’s revenues from exports to Tanzania, which consists mainly of pharmaceuticals products, soaps, plastic items and other consumer goods, increased from US$84.2million in the FY 2018/2019 to US$132.2million in the FY2019/20, while that of Burundi increased from US$44.6million to US$56.18million during the same period under review amidst the effects of the coronavirus pandemic.

This is the first time that Uganda recorded the highest export revenues from the two countries in the history of their bilateral trade.  In the FY 2015/16, Uganda’s exports to Tanzania earned US$95.5million and that of Burundi was US$50million.

Tanzania, however, enjoys a substantive export benefits to Uganda as it recorded an increase in export revenues from US$401million in the FY2019/2019 to US$446.5million in the FY2019/20.

However, Uganda’s revenues from the rest of the east African countries – Kenya and South Sudan – and the Democratic Republic of Congo (DRC) dropped as a result of closure of border points as countries sought measures to contain the spread of coronavirus pandemic.

Uganda’s earnings from exports to Kenya dropped from US$533.9million in the FY2018/19 to US$496milllion in the FY2019/2020. In the FY2017/18, Uganda’s revenues from exports to Kenya stood at US$678million, the highest ever in the history of trade between the two countries.

However, Uganda’s imports from Kenya, which consists mainly of petroleum products, iron and steel and pharmaceutical products widened from US$711million to US$711.7million.

In addition, Uganda’s export revenues from South Sudan and the DRC dropped from US$417.5million and US$526.3million in the FY 2018/19 to US$403 million and US$491.5million in the FY2019/2020, respectively.  Uganda exports mainly maize, sugar and manufactured commodities to South Sudan.

The country’s import bill from South Sudan increased from US$7.3million to US$83.5million, while that from the DRC fell from US$76.8 to US$27.4million during the same period under review.

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