ULTIMATUM TO EAC STATES ON TAX DISTORTIONS

Business leaders have issued an ultimatum which called for urgent removal of tax distortions in East Africa.

Their removal will not only relieve business people but also bring sanity in the allocation of resources in the Community.

They gave their ultimatum in Arusha late last week at the breakfast meeting organized by the East African Business Council (EABC).

Their concerns were later expected to be presented to the Summit of the Heads of State which took place on Friday.

The CEOs and representatives of the business associations said tax distortions undermined efficient implementation of the trade-related protocols in the region.

Distortionary taxes are taxes that affect the prices of items in the market, hence impacting the purchasing power of the buyers.

Some distortionary taxes are intentionally established to reduce market externalities, which are costs that a business imposes on the people.

A tariff is also a distortionary tax because it makes imported products cost more, so consumers have an incentive to purchase domestic products.

Speakers at the roundtable did not pinpoint products where such taxes had mostly been imposed upon by the revenue authorities.

However, they stressed time has come for the partner states to swiftly act on the matter by scrapping such taxes altogether.

This, they argued, has to  be done through harmonization of domestic taxes as stipulated in the EAC Customs Union, Common Market and Monetary Union protocols.

The EAC Treaty, a principle guideline of the Community activities, also calls for the harmonization of domestic taxes.

The EAC Domestic tax harmonization policy was approved by EAC Ministers of Finance some months ago to guide the process.

"To date, hardly any progress has been made on the actual process of harmonization of the
domestic taxes", lamented Adrian Njau, a trade expert with the EABC.

He attributed the drawback to unwillingness by some EAC partner states to harmonize domestic taxes in order to retain policy space.

Instead, different domestic tax regimes, he explained, have often facilitated illicit trade and discouraged intra-EAC trade and investment.

Domestic tax regimes include the Excise Tax, Value Added Tax (VAT), Income Tax, among others. They are key to regional trade.

Mr. Njau said an unharmonized domestic tax regime hampered the free movement of goods, services, service suppliers, labour and capital.

The breakfast meeting at Mt. Meru Hotel called on the EAC Heads of State to set timelines for partner states to act on the matter.

Actual process of harmonization of domestic taxes should start with Excise Duties; and Value Added Taxes and later Income Taxes and ultimately Tax Incentives

This would demand that the seven Heads of State  direct their respective countries to ratify the required protocols and agreements.

These include  EAC Agreement for the Avoidance
of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income.

This, according to a communique issued by the business leaders, will enable the  Agreement to come into force in January 2023.

The partner states were also urged to harmonize product standards to help businesses to cut down costs associated with different national
standards in force in the EAC.

Harmonized Standard and regulations are easier to enforce, simpler for consumers to understand,
and more efficient for manufacturers to implement.

EAC has an established structure to harmonize standards through specific requests from national bureaux of standards and the private sector.

The persistent non-tariff barriers (NTBs) also came on the radar with speakers blaming them for  increased transaction costs.

Each partner state was directed to remove with immediate effect all existing NTBs to the importation into their territories of goods originating to other partner states.

Recurring NTBs arise from protectionist measures though the EAC partner states have managed to resolve 230 of them by the end of February this year.

Non-operationalization of the Trade Remedies Committee to handle matters relating to the application of Rules of Origin and trade disputes aggravate the problem of resolving NTBs in the region.

 Mr. Jaswinder  Bedi, EABC vice chairman urged the EAC partner states to set clear timelines for the attainment of a fully-fledged Common Market which would, among other things, streamline the work permits issuance.

 

He added that restrictive Bilateral Air Agreements continue to curtail the free movement of goods, services, service suppliers, workers, capital, persons as well as rights of establishment and residence.

 

He further expounded that the EAC partner states should liberalize the Construction,  Environment, Health-related and Social, Recreational, Culture & Sporting services as outlined in their commitment.

 

Dr. James Mwangi, the CEO of Equity Group Holdings, called for the adoption and implementation of common laws by the EAC  Partner States.

 

 Tanzania and Burundi were urged to join the One Network Area for Telecommunication and the EAC single tourist visa arrangement  in order to promote EAC as a single tourist destination.

 

ends

 

 

 

 

 

ULTIMATUM TO EAC STATES ON TAX DISTORTIONS

 

Business leaders have issued an ultimatum which called for urgent removal of tax distortions in East Africa.

Their removal will not only relieve business people but also bring sanity in the allocation of resources in the Community.

They gave their ultimatum in Arusha late last week at the breakfast meeting organized by the East African Business Council (EABC).

Their concerns were later expected to be presented to the Summit of the Heads of State which took place on Friday.

The CEOs and representatives of the business associations said tax distortions undermined efficient implementation of the trade-related protocols in the region.

Distortionary taxes are taxes that affect the prices of items in the market, hence impacting the purchasing power of the buyers.

Some distortionary taxes are intentionally established to reduce market externalities, which are costs that a business imposes on the people.

A tariff is also a distortionary tax because it makes imported products cost more, so consumers have an incentive to purchase domestic products.

Speakers at the roundtable did not pinpoint products where such taxes had mostly been imposed upon by the revenue authorities.

However, they stressed time has come for the partner states to swiftly act on the matter by scrapping such taxes altogether.

This, they argued, has to  be done through harmonization of domestic taxes as stipulated in the EAC Customs Union, Common Market and Monetary Union protocols.

The EAC Treaty, a principle guideline of the Community activities, also calls for the harmonization of domestic taxes.

The EAC Domestic tax harmonization policy was approved by EAC Ministers of Finance some months ago to guide the process.

"To date, hardly any progress has been made on the actual process of harmonization of the
domestic taxes", lamented Adrian Njau, a trade expert with the EABC.

He attributed the drawback to unwillingness by some EAC partner states to harmonize domestic taxes in order to retain policy space.

Instead, different domestic tax regimes, he explained, have often facilitated illicit trade and discouraged intra-EAC trade and investment.

Domestic tax regimes include the Excise Tax, Value Added Tax (VAT), Income Tax, among others. They are key to regional trade.

Mr. Njau said an unharmonized domestic tax regime hampered the free movement of goods, services, service suppliers, labour and capital.

The breakfast meeting at Mt. Meru Hotel called on the EAC Heads of State to set timelines for partner states to act on the matter.

Actual process of harmonization of domestic taxes should start with Excise Duties; and Value Added Taxes and later Income Taxes and ultimately Tax Incentives

This would demand that the seven Heads of State  direct their respective countries to ratify the required protocols and agreements.

These include  EAC Agreement for the Avoidance
of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income.

This, according to a communique issued by the business leaders, will enable the  Agreement to come into force in January 2023.

The partner states were also urged to harmonize product standards to help businesses to cut down costs associated with different national
standards in force in the EAC.

Harmonized Standard and regulations are easier to enforce, simpler for consumers to understand,
and more efficient for manufacturers to implement.

EAC has an established structure to harmonize standards through specific requests from national bureaux of standards and the private sector.

The persistent non-tariff barriers (NTBs) also came on the radar with speakers blaming them for  increased transaction costs.

Each partner state was directed to remove with immediate effect all existing NTBs to the importation into their territories of goods originating to other partner states.

Recurring NTBs arise from protectionist measures though the EAC partner states have managed to resolve 230 of them by the end of February this year.

Non-operationalization of the Trade Remedies Committee to handle matters relating to the application of Rules of Origin and trade disputes aggravate the problem of resolving NTBs in the region.

 Mr. Jaswinder  Bedi, EABC vice chairman urged the EAC partner states to set clear timelines for the attainment of a fully-fledged Common Market which would, among other things, streamline the work permits issuance.

 

He added that restrictive Bilateral Air Agreements continue to curtail the free movement of goods, services, service suppliers, workers, capital, persons as well as rights of establishment and residence.

 

He further expounded that the EAC partner states should liberalize the Construction,  Environment, Health-related and Social, Recreational, Culture & Sporting services as outlined in their commitment.

 

Dr. James Mwangi, the CEO of Equity Group Holdings, called for the adoption and implementation of common laws by the EAC  Partner States.

 

 Tanzania and Burundi were urged to join the One Network Area for Telecommunication and the EAC single tourist visa arrangement  in order to promote EAC as a single tourist destination.