20 June 2018

East Africa: Tax Incentives to Boost Industry in EAC

EAC countries have turned to tax incentives in a bid to boost industralisation.

Finance ministers from Kenya Uganda, Rwanda and Tanzania all presented their budgets on Thursday last week.

The four countries also had one common theme; 'Industrialisation for Job Creation and Shared Prosperity'.

The budgets, however, took varied approaches to spur thier growth agenda.

The budget speeches showed how the governments planned to support and promote their priority areas. One common incentive was tax exemptions.

For instance, neighbouring Tanzania is moving to support their local pharmaceutical industry by exempting tax on packaging materials produced specifically for use by products in the field.

Experts say that among other things, this is likely to act as an incentive for investors and entrepreneurs in the sector.

The Tanzanian Government also exempted tax on purchase of sanitary pads a move which gender activists have applauded saying it will significantly reduce the prices of the items.

David Baliraine a senior Manager at Ernst and Young noted that the East African nation had also exempted taxes on government projects funded by non-concessional loans and also on agreements signed between the Government and a Financial Institution.

This, he noted is a move geared at attracting more funding for projects being undertaken in the country.

Baliraine was speaking at a breakfast meeting convened to analyse the budget for the firm's clients and stakeholders on Monday morning.

Exemption of imported animal and poultry feeds additives was also heighted in the new Tanzanian budget which points towards promotion of livestock keeping.

In Kenya, just like in Tanzania, the government exempted taxes on animal feeds which Baliraine explained as part of a regional effort to promote livestock keeping.

The country's agriculture industry could also benefit from the tax exemption of equipment to be used in construction of grain storage facilities which is expected to build towards food security.

Neigbouring Uganda has most of its exemptions towards development of industrial park or Free Zone whose investment is at least US$200m.

Under this, Baliraine explained that services such as feasibility studies, design and construction were tax exempt. Earth moving equipment and machinery as well as construction materials are also exempt from tax, further showing support to the construction sector.

Uganda's tourism sector also received a boost with developers receiving exemptions for investments with a minimum investment of US$15m and room capacity of 100 guests. Investors in the country's healthcare sector also got an exemptions for investment with a minimum capital of $10M.

In Rwanda, tax exemptions were in favour of heavy vehicle importers with trailer not taxed compared to the previous levy of 10 per cent of the value of the truck.

Commercial trucks with a capacity of over 20 tonnes will not pay any tax, a huge relief from the previous 25 per cent levy.

Rwandan investors in public transport also saw vehicles with a capacity of over 50 passengers will pay 0 taxes down from the previous 25 per cent.

Communication equipment will remain tax-exempt as well as sports bikes for racing purposes.

Local clothes makers had their machines and other raw materials exempt from tax to boost the apparel sector.

Commenting on the execution of the current Rwandan budget, Allan Gichuhi, a partner at Ernst and Young Rwanda said that key sectors had benefited including agriculture, water and sanitation, energy and transport among others.

"The agriculture sector had improved production. In the energy sector, there are about 113,605 new households connected to electricity. In the transport sector, there was commence of construction of the New Bugesera International Airport and 138 km of road upgraded," he said.

Other sectors that have been impacted by the current budget include urbanisation and human settlement, education sector, health sector (control of malaria) and social protection among others.

East Africa

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