Align tax regimes and standards to spur regional trade, EAC states told

Kenya Private Sector Alliance (KEPSA) CEO Carole Kariuki during Presidential Economic Dialogue at Serena Hotel in Nairobi on June 2nd, 2023 [Boniface Okendo, Standard] The lack of agreement among East African Community (EAC) countries on revenue collection processes is among the reasons for the slow growth of trade in the region. Kenya's apex private sector body has detailed how discordance among EAC countries holds back entrepreneurs in the region, particularly exporters and importers as respective jurisdictions impose different levies on the same products. Kenya Private Sector Alliance (Kepsa) has also noted the lack of harmonised standards and compliance across the region as another barrier to trade. Kepsa Chief Executive Carole Kariuki said products that comply with regulations in one member state may face challenges in another even when they originate from the same jurisdiction. "For example, the packaging standards for bulk detergents differ between Tanzania and Kenya, causing complications for traders who operate in both markets. Inconsistent application of standards and arbitrary enforcement by border officials further complicates the situation," said Ms Kariuki. She proposed the EAC develop a centralised digital registry where products can be pre-approved and endorsed for compliance across all member states. This system, she added, should provide a unique reference ID that can be used to track and verify product compliance at any point in the trading process. "This would not only streamline cross-border trade but also build trust among businesses and regulators," said Ms Kariuki. While addressing the business community and policy leaders at a roundtable attended by EAC Secretary General Veronica Nduva last week, the Kepsa boss singled out alignment and integration of the revenue collection processes as one of the critical areas that need urgent attention. She said currently, importers face varying requirements and levies despite sourcing products from the same jurisdiction. "For instance, importers in Rwanda and Uganda often encounter discrepancies in levies for identical goods, leading to inconsistencies that hinder trade efficiency," said the Kepsa boss. "Additionally, standards and permits for importing goods are not uniformly applied, which creates uncertainty and delays at the borders." A single-window digital platform for importers and exporters can access harmonised information and guidance has been proposed to resolve this. She said this would be a significant step forward. Ms Kariuki said this platform should allow for instant resolution of queries and ensure that directives from authorities are consistently applied across all member states. "Such a system would encourage new entrepreneurs to enter the market by providing a clear and predictable trading environment," she said. Ms Nduva, the EAC Secretary General, who is barely 100 days in office, acknowledged this challenge even as she noted intra-EAC trade value increased by 14 per cent to $12.2 billion (Sh1.6 trillion) in 2023 compared to 9.2 per cent at $10.7 billion ( Sh1.4 trillion) in 2022. "Partner states still rely heavily on taxes and duties and this is largely linked to the fact that the process of harmonisation of domestic taxes is also an ongoing process," she said. Ms Nduva said the regional private sector needs to find common ground where safeguarding national interests aligns with promoting regional benefits. "To reduce protectionism by EAC partner states, the private sector needs to embrace product diversification, specialisation, and value addition in manufacturing and take advantage of the over 300 million EAC market," she noted. Ms Nduva referenced projections that indicate all partner states in the region are expected to record growth in their Gross Domestic Product (GDP), with Kenya and Tanzania leading the pack. "This calls for the PS to invest in sectors that have the potential to drive economic growth (manufacturing, agriculture, and services) and promote regional integration, trade, and investment to maximize the potential benefit of economic growth," she said. EAC is currently implementing the EAC Market Access Upgrade Programme in partnership with the European Union to improve market access to selected agriculture value chains, among them coffee, cocoa, tea, spices, avocado and other horticultural products. "While partner states have undertaken several reforms, there are still laws and regulations of Partner States that remain non-compliant with the Common Market Protocol commitments," she said. Challenges associated with the tax policies in the region include the definition of what tax is. "There are huge differences among EAC member countries' tax systems including definitions of tax bases that have the effect of conferring unfair tax competition and unequal treatment of taxpayers, goods, and services in the region, which if not addressed will distort the effective functioning the Common Market," reads a policy brief titled Harmonisation of East African Community Tax Policies and Laws by Consumer Unit and Trust Society(CUTS) International that referenced EAC. This challenge is exacerbated by the fact that the majority of businesses in the region are micro, small, and medium enterprises that operate informally. "For most of the informal small businesses, the choice to pay tax or remain in the informal sector would be a simple one; stay in the informal sector as long as possible because the perceived benefits outweigh the perceived costs," the policy brief reads. The call for harmonisation of tax policies and regulations was echoed by Kepsa Chairman Dr Jas Bedi, who noted that while the region has made progress in harmonising policies and regulations, more work is needed to create a truly seamless business environment. He said EAC still faces challenges in industrialisation. "The region remains under-industrialised due to factors like low electricity access, high costs, poor infrastructure, and protectionist policies. Addressing these issues is crucial for boosting competitiveness and reducing trade deficits," he said. Dr Bedi said the EAC is strategically positioned to be a powerful industrial hub, given its large population, land area, and proximity to major trade routes. "However, the region's share of continental trade remains limited due to the aforementioned industrialisation challenges," he said. "Kepsa proposes the establishment of a regional task force to identify and address regulatory bottlenecks, with input from the private sector."

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