6 June 2017

East Africa: Import Duty and Vat Waiver for Textile Makers

East African Community partner states have agreed to grant garments and textiles manufacturers a three-year waiver of duties and value added tax (VAT) on inputs, fabrics and accessories not available in the region to boost local production and reduce the cost of production. This is one of the strategies to promote textiles and leather industries while slowing down the importation of used clothes, shoes and other leather products from outside the region.

The EAC partners will now adopt a three-year strategy (2017-2019) for the phase-out of importation of used clothes and shoes, through increased levy on these products, compliance with EAC Standards licensing of importers, and categorisation of products per bale of imports.

A policy on the recommendations on the modalities for promotion of textile and leather industries states that "The EAC shall grant all EPZ companies an increase of domestic quota supply from the current 20 per cent for a period of three years.

The off-loaded portion shall be subjected to payment of requisite common external tariffs (CET) rates and must strictly comply with EAC rules of origin," adding, "Partner states to establish Cotton Lint Banks modelled around Uganda cotton buffer stock model to ensure availability of cotton lint for spinning mills and downstream value addition.

All partner states producing cotton lint to set a target of at least 30 per cent local value addition to domestic cotton lint. The threshold should be increased to 50 per cent within five years."

The EAC has set a four-band tariff structure for cotton, textiles and apparels to promote cotton yarn and fabric production. These include 0 per cent tax on imported raw materials not available in the region, 10 per cent for intermediate inputs, 25 per cent for fabrics and 40 per cent for ready made garments or $5 per kg.

"The current CET should be reviewed and the following new rates adopted," says the paper.

EAC directive

The recommendations follow a directive by the EAC Heads of State last year for a study to be conducted on the modalities for the promotion of textiles and leather industries in the region as well as mechanisms for stopping the importation of used clothes, shoes and other leather products from outside the region.

To implement the two directives, the Secretariat conducted two separate studies on cotton, textile and apparels value chains; and on leather and footwear value chain.

The study found that the potential for trade in cotton is enormous but remains untapped.

"EAC region has the potential to become a major player in the regional production and trade in cotton, textiles and apparels products. The regional textile industry will have a potential trade valued at $3 billion by 2025, compared with a total of $0.34 billion in apparel exports from the region in 2013," said the study findings.

Growing imports

Further, the study notes, the growth of used clothes imports hampers the development potential in the sector. Overall, the importation of used clothes and shoes has been growing in all the EAC partner states with the trade value in 2015 amounting to $151 million, accounting for 8 per cent of global imports.

The used clothes and shoes are mainly imported from the US, UK and Canada as donations. The importation of used clothes and shoes in Africa in general, accounts for roughly 40 per cent of the decline in production and 50 per cent of the decline in employment.

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