By John Oyuke
The private sector in the East Africa Community (EAC) is pushing for increased role in revising tax legislation in the region.
The business community wants the harmonisation of taxes to include elements that would enable them to thrive and contribute to the success of the East African Community Common Market Protocol, whose implementation commenced on July 1.
The private sector held a meeting in Arusha, Tanzania, last week to develop common positions on how best to harmonise excise duties in various sectors. The Kenya-Tanzania border. EAC commits partner States to harmonise their tax policies to remove tax distortions. Photo: Jeniffer Wachie/Standard
The Kenya-Tanzania border. EAC commits partner States to harmonise their tax policies to remove tax distortions. Photo: Jeniffer Wachie/Standard
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According to Agatha Nderitu, the executive director of East African Business Council (EABC), harmonisation of domestic taxes in the region is important to avoid any harmful effects that different rates might have on intra-regional trade.
"Differences in domestic tax structures across Partner States result in distortions, which in turn alter returns on investment and impact on overall investment environment," she said.
The meeting attracted manufacturers of soft drinks, tobacco industry, telecommunications, beer, petroleum dealers, and edible oils traders among others.
The outcomes will be fed into the draft of the East African Excise Management Bill to be tabled before the East African Legislative Assembly (EALA).
EAC commits partner states to harmonise tax policies to remove tax distortions aimed at bringing more efficient allocation of resources in the region.
Harmonisation of tax policies and rates, the organisation asserts, would significantly simplify tax administration and execution of business transactions.
Last year, a tax study, carried out by the GTZ in collaboration with the EAC member states, the EAC Secretariat and the East African Business Council in anticipation of the advent of the EAC Common Market, raised the critical need for effective and comprehensive harmonisation of tax policies in member states.
The study recommended potential areas for harmonisation in the different tax categories of Value Added Tax (VAT), Excise Taxes, Personal Income Tax and Corporate Income Tax.
Experts have noted that while EAC citizens would be concerned with Personal Income Tax, the potential changes to VAT and excise duty are of interest to businesses due to their direct impact on profitability of firms.
According to a tax manager with a Kenyan audit firm, there is need to harmonise tax policies across the partner states to enhance compliance, adding, "the idea of free movement of goods across partner states coupled with different tax policies by these states may be a fertile ground for corruption and smuggling."
Special tax policies
EAC citizens, he added, might be tempted to import goods through states with special tax policies and transfer them to their countries without paying further taxes.
While officially launching the East African Common Market Protocol last week, President Kibaki observed that contrary to fears about the protocol, the EAC Customs Union has led to increased revenues across all the partner states.
"Increased cross-border investment within the region is being realised and firms are now increasingly basing business plans on the regional market, rather than the national market," he said of the regime that promises to avail greater opportunities for trade in goods and services in the region.
Kibaki also pointed out that the foreign direct investment in the region has been on the upward trend.
He quoted Uganda Investment Authority statistics showing Kenya is among the top 10 sources of foreign direct investment to Uganda with 27 licensed investment projects worth $158 million.
In Tanzania, President Kibaki said Kenya is the second biggest investor with 270 companies operating there, providing jobs for more than 100,000 people.