East Africa Community’s goal of harmonizing domestic taxes continues to face headwinds as member states are yet to agree on uniform tax rates.
EAC Cabinet Secretary Adan Mohamed says elimination of anti-competitive taxes could be used to promote the region as a single investment destination.
Talks on harmonization of taxes was first mooted by the EAC Sectoral Council on Finance and Economic Affairs in May 2012 in Kampala, Uganda.
The move paved the way for regional finance ministers to meet and draft the EAC Domestic Tax harmonization policy that would give guidance on how the regional tax process should be carried out.
However, failure by member states to agree on uniform tax rules and rates for the region has slowed down the process.
The EAC Domestic Tax harmonization policy proposed introduction of EAC-wide minimum excise rates by type of goods and services, with regular adjustments and periodic realignment to take into account inflation and exchange rate movements.
According to the policy, harmonization of tax rates within the East Africa Community is expected to take a progressive approach starting from excise and VAT followed by income tax at a later stage.
On VAT, the policy proposes adoption of a single positive standard rate in each partner state subject to an EAC-wide minimum.
For example, Kenya’s standard VAT rate is 16 percent, while Uganda, Tanzania, Rwanda and Burundi are at 18 per cent.
With regards to income tax, the policy proposes adoption of common rules for determining the tax base, introducing a minimum income tax rate for each category to prevent harmful tax competition.
The process has been slow since some partner states are dissatisfied with the plan to harmonize VAT, income tax and excise duty which are considered critical sources of revenues for member states.
Experts say elimination of double taxation that has been cited as a major hindrance to fairness and investment, will highly depend on commitment by partner states.
Mohamed says elimination of non-tariff barriers and market distortions could undermine implementation of the EAC Common Market Protocol and the EAC Monetary Union Protocol.