Kenya’s taxation dilemma in face of EAC-CET scheme
Sunday July 07 2024
Burundi, Rwanda, Tanzania and Uganda have duty remission approved on raw materials and inputs for the manufacture of garments and other textiles. PHOTO | FILE | NMG
Kenya could be allowed to withdraw duty imposed on items by the East African Community after the withdrawal of its controversial Finance Bill 2024, experts say.
John Kalisa, chief executive of the East African Business Council said the country could apply for a stay of application in line with the provisions of the EAC Treaty.
The gazette notice dated June 30 and signed by Council of Ministers chair Deng Alor Kuol, lists the approved measures on import duty in the EAC common external tariff that will affect partner states.
Businesses in Kenya are bracing for “unintended consequences” of the EAC harmonised tax, which was earlier agreed on by Finance ministers.
“It may have a distortionary effect on business. It will have an impact on revenues, as it implies that Kenya will be applying a different rate from that of other partners,” Mr Kalisa said.
This is the second time the four- band CET is being implemented in the region.
Read: High taxes and debt threaten EA growth
The CET, one of the key instruments of the Customs Union, is meant to foster regional integration through uniform treatment of goods imported from third parties.
Protect local manufacturers
It also seeks to protect local manufacturers against competition from similar goods imported from outside the region.
According to experts, a 35 percent duty on imported finished products has the potential of growing intra-EAC trade by $18.9 million.
In addition, the region’s industrial production could increase by 0.04 percent to $12.1 million, and tax revenues by 5.5 percent.
In a Cabinet meeting held on Thursday, President Ruto said the National Treasury was reorganising the budget to accommodate the new reality. He announced again on Friday that his government was going to implement measures to ensure more austerity.
These would include substantial cutting down of budgets to “balance between what to be implemented and what can wait, and ensuring that key national programmes are not affected.
But the Kenya Association of Manufacturers warned that it may not be easy for Kenya to review the duty as per the CET requirements.
“Those discussions on CET are done at a very high level, at the technical levels, and it may not be easy for Kenya to be granted application of stay on the items in question,” said Anthony Mwangi, KAM CEO. “But first, the Treasury will have to initiate the process, ask for a corrigendum, which is issued in a gazette notice by the EAC. A corrigendum corrects a wrong position that is contained in a legal notice.”
KAM is collecting data from sectors that are affected by the EAC notice to consolidate a position that will be then forwarded to National Treasury and to the EAC.
In the notice, a 10 percent import duty on crude palm oil has been imposed on imports outside the EAC, which means the price of cooking fat and margarine will increase for the next year.
Other oils slapped with higher taxes are refined soybean oil, RDB Palm Olein, sunflower oil, and refined corn oil.
Read: Manufacturers fear Kenya could soon be EA's ‘supermarket’
On crude palm oil, Uganda and Kenya chose to stay application of the EAC CET rate of 0 percent and apply a duty of 10 percent for one year.
Baby diapers are also set for increased taxation, with Kenya and other EAC members deciding to apply a duty rate of 35 percent, up from the previous 25 percent under the CET rules.
Television sets will now apply a duty rate of 35 percent, from 25 percent last year.
On mobile phones, Kenya has made a decision to stay application of EAC CET rate of 0 percent and apply a duty rate of 25 percent this financial year.
But Burundi, Rwanda, Tanzania and Uganda have duty remission approved on raw materials and inputs for the manufacture of garments and other textiles.
Tanzania has applied for a stay application of the EAC CET rate of 10 percent and a duty rate of 25 percent on polyester / nylon twine for one year, protecting its textile industry.
On rice Kenya applied for a stay of EAC CET rate of 75 percent or $345 / MT, whichever is higher, and apply a duty rate of 35 percent or $200 / MT, whichever is higher, for one year.
Kenya to stay application of the EAC CET rate and apply a duty rate of 35percent or $300 / MT whichever is higher for iron and steel reinforcement bars and hollow profiles.
This is the second time the four- band CET is being implemented in the region.
John Kalisa, chief executive of the East African Business Council said could apply for a stay of application in line with the provisions of the EAC Treaty.
A week after President William Ruto shelved the contentious Finance Bill, 2024, the EAC taxes under the common external tariff (CET) came into force, potentially reversing some of the gains made by the bill’s withdrawal.