For months, a major tax headline that has featured in countries like Uganda, Tanzania and Kenya has centred around having a harmonized tax rates across sectors
Streamlining taxation to avoid the hassle that comes with double taxation has proven over time to be an effective approach to running an efficient tax system. This is the argument of the private sectors of countries in the East African region, calling for the introduction of a harmonized tax rate across the region.
In specifics, the private sector under the aegis of the East African Community is demanding that taxes such as Income Tax, Value Added Tax, and Excise Duty are pegged at a uniform rate across the region which allows for easing the cost of doing business and carrying out transactions in the region.
Further Demands of the Private Sector
Beyond rhetorics, the private sector wants the government of countries in the East-African region to take a step further by ensuring proposed uniform rates of taxes are enshrined in the 2022/2023 budget of the respective countries.
The argument of the private sector also bothers on the fact that having such a tax arrangement would enhance the rights and freedom of countries in the region in carrying out inter-trade transactions.
Simon Kaheru, a member of the East African Business Council (EABC) in buttressing the submission of the private sector as captured in an interview conducted recently by the All Africa publication noted that unified taxation will bring about an integrated approach to the overall development of the East-African region.
In his words,
Tax harmonisation is extremely important for all of us as East Africans. Tax matters impact businesses and most importantly impact our people,”
We want to see harmonised taxes so that we have positive effects on the rights and freedoms of people and businesses in East Africa. This will enhance the integration of the East Africa region
What matters for us is to see a pro-people budget in all of East Africa in the 2022/23 financial year.
Regional Efforts so far
Based on the unified tax rates suggested by the East African Community, Kenya has dropped a proposal for next year’s budget to reflect this uniform approach. The early action may not be far fetched from the August elections in view.
Following the new tax rates, it is in the pipeline that Tanzania, Rwanda and Uganda will release their budget proposal by June to reflect the same ideology while Burundi, South Sudan and DR Congo are yet to make a solid decision to reflect this regional approach.
However, this unified approach may pose several challenges because it cut-acrosses countries in the region. For instance, Tanzania charges excise duty on fewer services compared with the rest of the region.
This disparity comes to play in the telecommunication sector where an Excise Duty of 17 percent is applicable on data and airtime making it expensive for telephone calls from out of Tanzania.
In comparison, Uganda’s Excise Duty for data and airtime is pegged at 12 percent while that of Rwanda is put at 10 percent. Also, In Uganda, there is an additional rate of 0.9 percent per dollar per minute that applies to all incoming calls.
Still on Excise Duty but mobile bank transactions,
For telecommunication firms there are two different duties that are applicable. A duty of 17 percent is applicable on data and airtime making it expensive for telephone calls from out of Tanzania.
In Uganda, excise duty is 12 percent for data and airtime while in Kenya the rate applicable is 20 percent. Rwanda is 10 percent.
When it comes to money transfer, Tanzania collects 10 percent while 15 percent is applicable in Uganda as well as an additional 0.5 percent on the value of the transaction at the time of withdrawing the money. For Kenya, money transfer attracts an excise duty of 12 while Rwanda at 10 percent.
Since convenience, flexibility, equity and optimal economy represents the core characteristics of a good tax system, it is only a matter of time to tell if this will be reflected in this ongoing regional approach.
Unified Currency in the Offing
In a recent Uganda-DR Congo Business Summit in Kinshasa, there are talks of transforming the East African Monetary Institute into the East Africa Central Bank. This has brought about an expectation that by 2023, the region should have a single currency.
The Monetary Union is the third step in the EAC regional integration that is expected to be capped by Political Federation. Already, EAC member states have been working on full attainment of a Customs Union and a Common Market, amid several challenges which include non-tariff barriers, trade blockades and closure of border points.
