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Harmonisation of EAC tax system due next year

10th November 2014

MGI World Kenya, Uganda, Tanzania, Rwanda and Burundi,

The harmonisation of taxes among the countries of the East Africa Community (EAC) is due to be completed by April 2015, according to Kenyan tourism secretary Phyllis Kandie.

“All the five EAC states have agreed to conclude negotiations on the Single Customs Territory (SCT) by April. By principle, all the states are willing to have a harmonised tax regime,” she said.

Following this decision, the European Union (EU) and the EAC's five member states of Kenya, Uganda, Tanzania, Rwanda and Burundi, finalised a new Economic Pact Agreement (EPA). The EPA is designed to provide a solid foundation for EU-EAC trade relations and is intended to support the regional objectives of the EAC in its plans to harmonise the tax regime.

Ms Kandie noted the goal to bring about a "fully operational SCT" will begin by “harmonising the Value Added Tax (VAT) and the excise taxes”.

The EAC has little to show so far despite attempting to harmonise taxes for over seven years. The five EAC states had hoped to launch the region’s SCT this month, however, failure to find a common ground on domestic taxes stalled the process.

Currently, taxes in the EAC differ as the VAT rate in Uganda, Rwanda and Burundi stands at 18 per cent, Kenya is charging 16 per cent and Tanzania is a little more expensive as 20 per cent VAT is added.

Differences are also found with income tax, the average is 30 per cent but in Burundi the rate rises to 35 per cent.

The difference in tax regimes can create competition among members of the EAC making it “difficult for the EAC to market itself as a common market”, said Ms Kandie.

However, negotiations now focus around setting specific ranges for the limits within which domestic rates have to fall to boost fair competition. It is an ongoing process where the aim is for a united legal regime with harmonisation including auditing processes that “engage the tax payers among others”.

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