SMALL TRADERS IN THE EAC IMPACTED BY TAX DISTORTION  

BY GRACE MACHA IN ARUSHA 

Small scale traders, particularly women, are most vulnerable to tax distortions in East Africa.

The majority of them are subjected to multiple taxes and fees within the different partner states.

"Unharmonized tax policies and systems negatively impact cross border trade", said members of the East African Legislative Assembly (Eala). 

In addition, the trend has led to persistence of undesirable practices like smuggling of goods in order to evade taxes.

Unharmonized excise duties and discriminatory taxes also cause distortions in cross-border transactions and trade disputes.  

The MPs were responding to a Motion tabled before the House urging the East African Community (EAC) partner states to harmonize tax policies. 

This, they suggested, should be done through removing tax distortions and promoting investments within the region.

Harmonization of tax policies among the partner states will not only eliminate tax distortions but facilitate cross border trade, they said.

"It would facilitate free movement of goods, services,ds, services, capital and workers", they said according to a media dispatch.

Tax harmonization would also reduce tax competition among the partner states and enhance tax compliance and enforcement.

The Motion was moved by Eala member from Uganda George Odongo and seconded by Ms Fatuma Ndangiza, a lawmaker from Rwanda.

The Assembly, held recently in Nairobi, called on the EAC Council of Ministers to act swiftly on tax distortions. 

The partner states should develop,implement and fast-track programmes that would remove tax hurdles. 

They should adopt specific harmonized principles relating to various taxes "to ensure that all tax policies conform to these adopted principles".

Under Article 83 (2) (e) of the EAC Treaty, the partner states in the Community undertook to harmonize tax policies in order to bring about a more efficient allocation of resources.

Progressive removal of tax hurdles would also promote investments in the expanding bloc which currently has eight member states.

However, the MPs regretted that the EAC Double Taxation Agreement adopted wayback in 2025 to facilitate removal of double taxation has not been ratified by all the partner states.

Furthermore, the matter has been compounded by the fact that the EAC partner states have different tax bases,tax rates, tax deductions and tax incentives for investments.

Diverse tax regimes, including variations in value-added tax (VAT) and excise duties, have been identified as potential deterrents to regional investors.

Mr Odongo emphasized that the existing tax disparities incentivize a "race to the bottom" among partner states, hindering market integration and trade.

On her part Ms Ndangiza  highlighted the need to urgently resolve the issue in order to enhance the region's competitiveness in attracting investments.

 A recent forum held in Arusha noted that tax distortions in the EAC bloc will persist as long as the partner states  do not agree on the  Double Taxation agreement.

Member countries of the bloc have to fast-track the ratification and implementation of  the Agreement for the Avoidance of Double Taxation.