Nairobi — Some Kenyan manufacturers are finding it hard to enter the Tanzanian market, almost one year after the East African Customs Union came into effect (January 1, 2005).
Kenya's tea exports to Tanzania are facing non-tariff barriers.
Under the union, goods to and from Uganda and Tanzania enter Kenya duty free. But specific goods from Kenya into the two countries attract duties, ranging from 25 per cent to five per cent, under a programme to end internal tariffs on Kenya goods by 2010.
However, besides the official tariffs, a study by Kenya Association of Manufacturers - Elimination of Non-Tariff Barriers - found that some Kenyan exports face problems accessing Tanzanian market, due to application of discriminatory domestic taxes.
Kenyan cigarette manufactures pay a higher rate of excise duty on imported cigarettes that do not have a 75 per cent local content. Also an import licence is required on tea originating from Kenya. Consequently, it is difficult to penetrate the Tanzanian market for cigarette and tea manufacturers. "Ketepa has been unable to sell tea in Tanzania from 1998, where it had managed to capture a two-container load market per week, worth about Sh6 million, which was just a small percentage of the potential market," the report says.
It recommends the harmonisation of domestic taxes and import regulations among the East African Community. The report calls on member countries to agree and treat EAC originating raw materials as local content. One of the bottlenecks that need to be overcome is the fear of loss of tax revenue after harmonisation of domestic taxes, the report says.
Further, it says there will be resistance by Tanzanian tobacco producers on treatment of EAC raw materials as local content. There is also fear of loss of market share by Tanzanian tea producers. There is a need to sensitise producers that EAC is now one customs territory, where taxes and import regulations should apply equally on goods produced within the region.
The study's consultant, Simon Ihiga, said Tanzania has to explore areas where revenue lost from harmonised excise duty could be recovered, for example efficient collection of other taxes like VAT. Further, Tanzania charges $200 (Sh14,800) a year or $20 (Sh1,480) per entry on sales vehicles entering the country and a $5 (Sh370) fuel tax per vehicle. Kenya does not impose these charges. "The charges applied by Tanzania makes penetration of Tanzanian market more difficult compared to Uganda and Kenya," Mr Ihiga said.
To eliminate this barrier to trade, he said, EAC cross-border transport charges should be harmonised, although there is the challenge to overcome Tanzania's fear of losing revenue. The objective of the EAC Customs Union is to free and promote regional trade within the union, and boost cross border and foreign investment.
"This broad objective cannot be achieved without a well thought out and carefully researched mechanism for identification, monitoring and elimination of NTBs [non-tariff barriers] in EAC region," said Trade and Industry Permanent Secretary, David Nalo during the launch of the report recently. Restrictions to trade are not only restricted to products only, but movement of people across the border as well. Immigration procedures at border crossings are problematic. Tanzania charges a business visa fee of $50 (Sh3,750), initially at $200 (Sh15,000), to business people entering Tanzania.
The cost of doing business in Tanzania by East Africans is very high since the visa fee is payable at entry. The report says Tanzania should remove the business visa fee for East Africans. "Tanzania should implement the EAC Council of Ministers' decision to give a six-month visitors' pass to holders of the East African passport by stamping the passport accordingly." However, Tanzania immigration officials could resist implementation due to fear of loss of opportunities for corruption, according to the report.
Tanzania and Uganda require work permits for Kenyan employees of Kenyan companies that have branches in either of the two countries. As a result, companies spend a lot of time and incur substantial costs, following up their employees' work permit applications, the report says. Failure to secure the permits mean that companies are sometimes forced to employ locals who lack the required skills, which eventually compromises on their efficiency and work standards.
Mr Ihiga said that Uganda and Tanzania immigration departments should allow free movement of factors of production especially labour, even before the Common Market comes into operation, "in spirit of East African Co-operation." He called for harmonisation of entry or work permits before the end of the year since the target date of July 2005 has already passed.
However, Mr Ihiga said local people in Uganda and Tanzania are putting pressure on their governments to resist issuance of work permits to Kenyans, based on fear of loss of employment opportunity. Many East Africans do not have an East African passport, while even for those who have it, the immigration departments in the three countries still insist on stamping it at every exit or entry point. This particularly affects small business people crossing borders through undesignated routes, which is illegal, and could attract substantial costs if one is arrested as an immigrant.
The immigration departments could solve the problem by speeding up issuance of East African passports, simplifying the application procedures, reducing application fees and decentralising the issuance process to major urban areas. Further, the requirement to stamp the passport at every entry or exit should be removed, by respecting the EAC Council of Ministers' decision to issue six months multiple entry or exit visas and passes without delay, Mr Ihiga said. In the long run, he said, the three partner states should accept the national identity card as a valid document for crossing borders, once issuance of identity cards in Uganda and Tanzania is completed.