East African states deviate from agreed tax rates in local production battle

EAC-CET was established to protect the common interests of various partner states by safeguarding specific sectors, and the lack of uniform application

Kampala, Uganda | THE INDEPENDENT | Import costs in the East African Community states are expected to remain high under the newly implemented Common External Tariff (CET) as countries prioritize the protection of their local production firms and value addition.

Donald Tindamanyire, the Principal Customs Officer for Tariff and Valuation at the EAC Secretariat, revealed during the recent “Post-Budget 2024/25 – Disparities in the Application of EAC-CET and Impact on EAC Businesses” webinar organized by EAC Secretariat and RSM Eastern Africa last week, that partner states agreed to adopt a 35% maximum tariff charged on imports originating outside the trading bloc.

This decision, he said, was based on analysis showing that the tariff would increase revenue by 5.5%, boost intra-regional trade, reduce importation, promote value addition, attract foreign direct investment, and create employment opportunities for East Africans.

However, he said that these benefits might not be realized due to the non-uniform application of the agreed CET, citing persistent stays of applications (SOA) and country-specific duty remissions.

“For example, in the FY 2024/25, there are 1,956 tariff lines under stays of applications,” he said, noting that Uganda leads with 901 SOAs, followed by Kenya with 816, Rwanda with 116, Tanzania with 89, and Burundi with 24.

Tindamanyire added that SOAs were mainly on products attracting a 25% import duty, accounting for 77% of all SOAs, with products attracting a 35% import duty accounting for 25%.

An analysis of SOAs by value chain sector shows that cotton, textiles, and apparel lead with 621 tariff lines under SOA, followed by iron and steel, and agro-processing for the financial year 2024/25.

Josphat Karanja, the manager of Tax Consulting at RSM Eastern Africa, said lack of uniform application of the EAC-CET causes market distortions.

“The annual stay order applications, which are effective for only one year, lead to uncertainties for manufacturers and traders, thus affecting crucial business decisions,” he said.

Karanja emphasized that the EAC-CET was established to protect the common interests of various partner states by safeguarding specific sectors, and the lack of uniform application undermines this objective.

Meanwhile, Adrian Njau, the acting Executive Director of the East African Business Council, noted that the previous CET maximum rate was a 3-band structure with a maximum tariff rate of 25%.

The current EAC-CET, successfully adopted in 2022, is a 4-band tariff structure with a maximum tariff rate of 35%, designed to promote value addition, regional value chain integration, intra-EAC trade, and protect products sufficiently produced within the region from similar imports outside the EAC bloc. Some of the products covered by this tariff line include; dairy and meat products, cereals, cotton and textiles, iron and steel, edible oils, and beverages and spirits.

Others are; furniture, leather products, fresh-cut flowers, fruits and nuts, sugar and confectionery, coffee, tea and spices, textiles and garments, head gears, ceramic products and paints, among others.

Previous EAC statements have provided for a 3-band tariff structure – 0%, 10% and 25% for raw materials, intermediate goods and finished goods, respectively.

According to the EABC Analysis 2022, effective implementation of the EAC-CET maximum tariff of 35% could increase intra-EAC trade by $18.9 million and create 6,781 jobs.

Harmonise tariffs

Simon Kaheru, the EABC Vice Chairperson, urged EAC partner states to uniformly apply the EAC-CET to enhance intra-EAC trade, investment, and regional value chains. He stressed that the new trading arrangements facilitate intra-trade and create a level playing field in the EAC Customs Territory by providing a uniform tariff structure for products imported outside the EAC bloc.

Kaheru called for public-private dialogues and private-to-private partnerships to drive the uniform implementation of the EAC-CET to boost intra-regional trade. Officiating the EABC webinar, he elaborated that the EAC-CET is an essential instrument of the EAC Customs Protocol.

The webinar, which convened over 100 industry leaders and government officials in the region, emphasized the importance of the CET in driving intra-regional trade and called for political goodwill to ensure its uniform application.

Other key recommendations from the webinar included the need to build productive capacities in the region, harmonize private sector positions on the CET, protect local industries, apply regional duty remission schemes to promote East African manufacturers, develop industrial infrastructure for priority value chains such as leather to promote value addition, and increase awareness of the EAC-CET Version 2022 among both public and private stakeholders.

The webinar also recommended promoting dialogue between the private and public sectors to address emerging issues regarding the implementation of the EAC-CET, forming a common position on the rate to be applied on products of economic importance, assessing the impact of EAC-CET 2022 on FDI and inter/intra-regional investment, evaluating national and regional productive capacities, and addressing challenges leading to the constant application of SOAs, especially for the agro-processing, textile, and apparel sectors.