12 September 2006

East Africa: EA Community Working On Duty Remission for Goods

Nairobi — The East African Community is developing a system to fasten duty remission on selected commodities.

Commodities selected for this scheme include sugar for industrial use, paper for manufacturing exercise books, text books and examination papers, bicycle kits for assemblers and scrap batteries.

Officials from the Customs department at the EAC secretariat have been meeting with manufacturers and other stakeholders to formulate regulations to manage the scheme. The last meetings were held in Kampala recently.

However, the new scheme has failed to excite manufacturers in Uganda since all the products covered by the scheme are on Uganda's list of goods it wants exempted. It is, however, more lucrative for manufactures who use the gazetted products in Kenya and Tanzania since they currently pay the official regional tariff like any other importers regardless of what they produce.

Officials from the EAC secretariat said that the scheme is a continuous arrangement but is subject to reviews when the need arises.

Kenneth Bagamuhunda, director Customs at the secretariat said a Customs Management Act is already in place, but there was need for regulations in order to effect a duty remission scheme. He said that the regulations will be ready in about a month's time.

Some of the key issues that came came up during the Kampala consultative meetings include holding regular audit of production and assessing input/output ratios and reconciliation and accountability of materials being used.

Manufacturers also proposed names of members who will constitute a vetting committee to determine companies that qualify for the scheme. Proposed members will come from manufacturers' associations, revenue authorities, finance ministries and the Customs Union.

During the meeting, it emerged that the regulation was vague about the intended beneficiaries.

Hilary Obonyo, executive director Uganda Manufacturers Association (UMA), said "We need to define what entails manufacturing, like who is an assembler, plant, or workshop. Otherwise everybody could take advantage and undermine industrial development in the region."

Challenges are expected especially in auditing and ensuring compliance. Failure to come up with systems that minimises abuse of tax exemptions has been the main reason for attempts to waive taxes.

UMA relies on data submitted by companies and the Uganda Revenue Authority, which audits firms once every four years on average.

Officials from the Ministry of Tourism, Trade and Industry say that with the new arrangement, manufactures in Uganda will have to choose to either remain on the Uganda list, which includes items that the Community exempted from import duty for a period of five years beginning last year, or join the regional scheme.

During the EAC meeting with the manufacturers on September 1, some companies said that it was better for them to remain on the Uganda list since all the items in the proposed scheme are included.

The duty remission scheme is, however, more restrictive on products. Import duty remission is on paper is for example restricted to paper that is going to be used in production of text books, exercise books and examination papers only, which is not the case with the Uganda list.

"We do not print a lot of text books in Uganda compared with Kenya, so it is better for us to remain on the Uganda list which is open to exemption on all paper imports," said an executive who attended the meeting.

The products for the duty remission scheme were selected after consideration of a number of pre-budget proposals from manufacturers to the respective Finance ministries at the close of the last financial year.

Finance ministers in the region also announced a reduction in the official market tariff from 25 per cent to 10 per cent in this financial year.

This tariff currently applies to all manufacturers in Kenya and Tanzania regardless of their line of production.

The East African Customs Union agreed to exempt import duty on certain products in Uganda for five years to ensure the country's industrial survival in the face of new competition from Kenya and Tanzania.

The concession was allowed to Uganda after manufacturers raised a strong case arguing that Kampala had guaranteed them protection for five years. They also said that factories in Uganda were still infant and that entrepreneurs had taken Bank loans which they were still paying.

In relation to trade outside the Community, Kenya has an upfront duty remission scheme for exports benefiting about 400 exporters. Uganda's uses the historical model in which exporters who qualify for tax remittance claim later.

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