Uganda Losing Customs Revenues As Bulk of Imports Are Zero-Rated

UNRA officials tour an oil well belonging to CNOOC Uganda Ltd in Buliisa District.

Uganda is losing more revenue on Customs-related taxes than any other East African Community country following the liberation of trade in the region, according to a draft EAC trade report.

The report says that while all the other EAC member states are also losing revenues on tax exemptions and duty remission schemes, they have however taken a strategic decision to reduce the value of imports under tax exemptions and duty remission schemes to cushion against heavy revenue haemorrhage.

The report, dated August, shows that Uganda's revenue loss on goods imported from other partner states under the exemption and remissions regime increased to $81.8 million in 2016, from $70.1 million the previous year.

The value of the imports increased to $322 million from $305.9 million and included parts of helicopters/aeroplanes, photosensitive semiconductor devices, mosquito nets and medical diagnostic as well as laboratory reagents.

According to the report, the implementation of the provisions of the Customs Union Protocol has implications for Customs revenue for the member countries.

Under the Customs Union, which came into force in 2005, the EAC partner states agreed to support trade liberalisation and enhance intraregional trade.

CET

The key features of the pact is the elimination of internal tariffs on goods traded among the partner states and adoption of a three-band Common External Tariff (CET) with a minimum rate of 0 per cent on raw materials and capital goods, a middle rate of 10 per cent on intermediate products and a maximum rate of 25 per cent on finished goods.

A group of 58 goods were classified as sensitive products with ad-valorem tariffs ranging from 35 per cent to 100 per cent.

Other features of the protocol include the application of EAC rules of origin and the establishment of an exemption and remission regime in order to promote and facilitate export-orientated investments, producing export competitive goods, and attracting foreign direct investment.

During the period under review, Kenya's forgone revenue decreased by 10 per cent to $597.8 million from $664.2 million while that of Tanzania fell to $444.1 million from $592.6 million.

In Rwanda, revenues lost on tax exemptions and duty remission decreased to $157.3 million in 2016 from $182.2 million in 2015 while the figure for Burundi fell to $54.3 million from $80.4 million in the same period.

In Uganda, the value of goods imported under the zero per cent tariff band stood at $4 billion accounting for 65.7 per cent of total imports while imports under the 10 per cent tariff band decreased by 1.5 per cent to $561.7 million.

The share of the value of imports under the 25 per cent tariff band decreased 2.1 per cent to $754.1 million from $883.7 million.

Uganda's major imports under the 0 per cent tariff band included crude palm oil, mineral fuels & oils, machinery and appliances, electrical equipment, pharmaceutical products and iron and steel.

The main products under per 10 per cent band included wheat and vehicles for the transport of goods.

The report notes that though the EAC has passed legislation to ensure a level playing ground for partner states, there is still a large disparity between the legal provisions and actual practice characterised by non-tariff barriers and the rules of origin provisions have hampered intraregional trade by restricting the sale of certain commodities produced in the region.

According to the report, among of the factors that inhibit EAC intratrade are those related to the application of the current CET and rules of origin.

Future plans

The EAC plans to revise the current three-band CET for failing to promote regional trade and industrialisation.

The EAC Council of Ministers had asked member states to agree on the implementation of a new CET by September 30, after failing to meet the July 1, 2017 deadline.

They also failed to meet the new deadline.

In September last year, the EAC Council of Ministers met in Arusha and said that the stability of the EAC CET has been affected by the frequent stays of applications by the partner states, creating distortion and eroding the harmonisation of the tariff regime.

The current EAC CET was designed and negotiated in 2002 to 2004 before coming into effect on January 1, 2005.

The review of the EAC three-band tariff could see the excessive protection given to sensitive goods such as maize, rice, wheat, textiles, sugar, milk and dairy products removed while a uniform duty is applied on the products to eliminate the frequent applications for preferential treatment of the products by some member states.

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