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East Africa: National Budgets Fail to Make Strides in Tax Harmonisation
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Business Daily (Nairobi)
OPINION
17 June 2008
Posted to the web 17 June 2008
Ben Sanga
The dream of an East African Community customs union by 2010 is in danger of falling apart due to differences between member states.
Fiscal planning disparities manifested by the three main EAC member-states during last week's national budgets are among factors that have cast more doubt on the realisation of the EAC customs union proper 2010.
An overview of the three countries' budgets indicates that their respective Finance ministers failed to make any considerable strides towards the supposed harmonisation of taxation regulations as expected by proponents of integration.
Harmonisation of tax regime would place the member states on the fast lane towards eventual elimination of trade and investment barriers in the region and realisation of a common market, which is one of the main goals of the EAC customs union.
The common market is based on the provision of Article 76(1) of the EAC Treaty, which recognizes the free movement of labour, goods, services and capital as one of the fundamentals of the common market.
This freedom forms the critical issues of negotiations for the EAC Common Market Protocol of which preparations and modalities for the negotiations happened in Kigali, Rwanda, last month and the second round is set for Nairobi soon.
Partner states were expected, however, to make some strides to harmonize their external trade policies, but the sluggishness has hampered the development and application of a common external trade policy.
EAC is now faced with member national legislation hurdles that impact on international trade such as those relating to the Value Added Tax (VAT) and exercise duties of which every country is apparently sticking to its own rates.
The insistence by partner states on individual rates has had a major impact on price and cost differentials of various goods in the region.
In the recent past, transporters in Kenya, Uganda and Rwanda have been at loggerheads with the Kenya Revenue Authority (KRA) over the manner in which it was implementing the East African Customs regulations on cargo transport.
The regulations effected by Kenya in April were not recognized by Uganda, which meant that transporters going to Uganda have had to pay for levies and licences again and the same applies to transporters from Uganda or Rwanda when they come to Kenya. The registration of persons still remains another issue affecting integration.
Tanzania and Uganda are yet to start issuing National Identity cards to their citizens, a scenario that could complicate movement across borders once the barriers to labour migration are brought down. Experts have been holding the view that the much-hyped dream EAC common market has far to go as so far there is nothing much to show on the ground.
They say that most of the outstanding hurdles could only be settled if the political wing of partner states comes in. They are therefore calling on a legal framework that can facilitate EAC joint trade negotiation.
Kenyan authority has come out recently to state that there are over ten changes facing the implementation of the said Customs Union chief among them, the creation of an institutional mechanism that will in a timely way address issues as they emerge. The Government says that such challenges are the biggest impediment in the realization of the institution at the regional level.
Tanzanian Finance minister Mustafa Mkulo
At a recent meeting, Trade assistant minister Omingo Magara urged the member-states to avoid unilateral decisions and instead adhere to the regional laws and laws and agreed policies.
It is anticipated that by 2010 both members would have harmonized their industrial practices, cross border investments and market the region as a hub or a one-stop centre that will also serve as an economic and investment destination with a view to attracting foreign direct investment.
Domestic protection
Another impediment is the tendency by partner countries to overprotect their products. The EAC partner states are signatories to various trading arrangements at bilateral, regional and multilateral levels, which are geared towards national development through export-led growth strategies. But are they willing to walk the talk? This will become evident in two years.
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Fiscal planning disparities manifested by the three main EAC member-states during their national budgets last week are among factors that have cast more doubt on the realization of the EAC customs union proper by the year 2010.
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