EAC agrees on tax levies and incentives
Wednesday October 31 2018
Uganda Revenue Authority staff at the Electronic Cargo Tracking System office in Kampala. EAC partner states have agreed not to levy value added tax on some essential goods and services that are consumed domestically. PHOTO | FILE
In an effort to reach common ground on the harmonisation of domestic taxes in the region, EAC partner states have agreed not to levy value added tax on some essential goods and services that are consumed domestically.
They have also agreed to offer tax incentives under an agreed set of rules and regulations to avoid unhealthy tax competition.
The EAC’s Committee on Fiscal Affairs noted that although the best practice is to subject all domestically consumed goods and services to VAT, the reality in all partner states is that, for various considerations, some goods such as medical supplies and educational materials are given some tax relief.
Currently Kenya levies 16 per cent VAT on books and other learning materials and eight per cent VAT on fuel. In Uganda, Rwanda, Tanzania and Burundi, learning materials have been zero rated.
Kenya’s standard VAT rate is 16 per cent, while Uganda, Tanzania, Rwanda and Burundi are at 18 per cent each.
However, a domestic taxes harmonisation progress report prepared by Kenya’s Ministry of East African Community Affairs shows that the process of harmonising domestic taxes (VAT, income tax and excise tax) is moving slowly largely because some member states think it will lead to loss of revenue.
The partner states had criticised the domestic tax harmonisation policy for failing to provide guiding principles, and ordered that the document be reviewed by February.
However, some partner states like Uganda had not submitted their country-specific comments on the draft policy by the time of its consideration by the Eighth Meeting of Ministers for Finance and Economic Affairs in April.
As a result, the Council directed the EAC Secretariat to convene a meeting of the region’s tax policy and tax administration sub-committee to finalise the draft policy document, and urged Uganda to consult and submit comments on the document.
“Despite the progress, there are challenges in the harmonisation of domestic taxes. The process is taking too long to conclude, especially considering that the EAC is already operating within the framework of a Common Market,” the report says.
The report notes that failure to harmonise domestic taxes will cause market distortions through harmful tax competition, cross-border smuggling and constrained movement of goods and services around the region