East Africa: Exit Kenya's Sugar, Enter Tanzania Rice - Kampala's New Trade War

Bags of sugar (file photo).

Even as recent trade wars in the East African Community have mostly featured Kenya and Uganda over sugar exports, Kampala has for the past two months been locked in a dispute with Tanzania over an 18 per cent value added tax on the latter's rice.

The EastAfrican has learnt that tens of thousands of tonnes of rice grown and produced in Tanzania are either lying at Mutukula and Port Bell or in other border towns on the Tanzanian side.

Uganda says it is invoking its internal law as opposed to the EAC laws. Article 15 (1) and (2) of the EAC Customs Union Protocol prevents discrimination and imposition of internal tax on products of partner states.

The five EAC partner states have not yet harmonised domestic tax laws and as such, Uganda's VAT Act applies in this case, according to Moses Egwapu, a tax policy officer at the Ministry of Finance.

"Why should rice from Tanzania not pay VAT? The VAT Act states that rice from outside Uganda attracts VAT... VAT is a domestic tax," Mr Egwapu told The EastAfrican.

Mr Egwapu added that the VAT Act applies to all rice imports so as to protect the local industry and give incentive to Ugandan millers to add value to their rice.

This, however, plays into the same nationalistic and protectionist motives that Kenya was using to block Ugandan sugar millers from exporting their excess sugar to Kenya to which Kampala responded by blocking beef imports from Kenya, until Presidents Yoweri Museveni and Uhuru Kenyatta agreed to end the long running trade war.

But the rice lobby in Uganda, which boasts 120 dealers who buy both locally as well as import from the EAC and elsewhere, is citing the EAC Customs Union Protocol and the EAC Customs Management Act as it heads to the courts to interpret the laws and arbitrate in this dispute.

"We are waiting for them to write to us formally about their stand and we shall then take them head on.

"We are going to fight this legally and morally. If this is not solved in the next few days, we will campaign the Protocol, highlighting the discrimination against rice in favour of sugar," said Issa Sekitto, spokesman of the Kampala City Traders Association, the business lobby to which the rice importers belong.

But other players in Uganda's rice sub-sector have a different take: That with the country about to go into elections, the imposition of this tax could be political.

Political angle

"Rice farmers in Uganda have become politically alert. They know when to push for protection from imports. This is election time in Uganda. What do you think will happen if the government allows imports to flood the market? It has political consequences," said Phillip Idro, a rice farmer and miller, and former Ugandan ambassador to China.

The Rice Council of Tanzania says its farmers have invested heavily in commercial rice farming and milling, resulting in improved production at 1.3 million metric tonnes per year -- against an annual demand of less than a million tonnes.

Trade rows between partner states testing the EAC instruments and commitment to the integration process are not new. In 2011, Dar slapped a 25 per cent tariff on Ugandan manufactured cosmetics, citing continued unfairness over the infamous "Uganda list of tax exempt raw materials."

At the start of the Customs Union Protocol in 2005, the EAC granted Uganda a five-year adjustment window to import 135 finished and intermediate products as raw materials, hence zero rated, while these attracted the common external tariff for Kenya and Tanzania.

This allegedly gave Ugandan manufacturers unfair advantage as products from these "raw materials" that were otherwise finished or intermediate for Tanzania and Kenya made similar products from these countries uncompetitive.

After the end of this adjustment window in 2010, Uganda applied for a further three years on a rolling one-year basis for companies that had not matured to start importing non-duty exempt inputs.

Ugandan cosmetics firm Samona Products is one of the companies that briefly suffered this measure, but was given access to the Tanzanian market after the products were tested by compliance bureaus.

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