EAC ministers order probe on products requiring special tax treatment
East African Community (EAC) ministers have directed the Secretariat to institute measures aimed at abolishing special tax treatment for certain goods in the region in the next 12 months.
The EAC Sectoral Council of the Ministers of Trade, Industry, Finance and Investment (SCTIFI) wants an investigation to ascertain the availability of these products in the region and the justification for the special treatment. They say applications for preferential tax treatment by member states must be backed by comprehensive and valid justification.
This is in the latest attempt by the regional ministers to deal with persistent stays of application requests by member states, which are believed to be watering down the objectives of common external tariff (CET), including enhancing regional competitiveness and industrialisation.
In a meeting held in Arusha May 26-30, the Council directed partner states to submit a list of not more than five products each, which are prone to preferential tax treatment and are available in sufficient quantities in the region by June 30, 2025.
Read: EAC ministers suspend new levies on high-risk products pending reviewThe EAC Secretariat and the partner states are expected to undertake a regional study to establish the availability of the products manufactured within the region by the end of June 2026.'The meeting emphasised the need for justification for the requested stays prior to approval,' says according to the report of the meeting.
The meeting noted that, despite the comprehensive review of the EAC Common External Tariff in May 2022 aimed at enhancing regional industrialisation, value addition and competitiveness, partner states have continued to submit numerous requests for stays of application on the same tariff lines.'This persistent trend suggests that national interests are still taking precedence over the agreed regional objectives, thereby undermining the uniform application and effectiveness of the revised CET,' says the report.
Currently, there are 1,956 tariff lines under stays (22 percent of CET), with potential increase to over 2,000 lines (30 percent of CET).'This upward trajectory raises concerns and undermines the EAC CET,' the Council warns.
They noted that some stays of applications were found to have minimal traffic, with transactions as low as $200.
The EAC Council of Ministers, in April 2014, decided to do away with stays of applications and directed that a phase out proposal be developed, which was subsequently adopted by the Sectoral Council of the Ministers of Trade, Industry, Finance and Investment in May that year.
But the directive is yet to be implemented, as countries still pursue this window of stays of applications and tax exemptions on various sensitive goods.
It is argued that the excessive protection granted to sensitive goods should be removed and the products opened to competition, as most member states have abused this window.
The EAC Council had agreed that the removal of stays of applications and duty remission inform the comprehensive review of tariffs.
According to the ministers, the special tax treatment accorded to sensitive items is not anchored in the EAC Customs law and is stifling intra-regional trade.
The ministers have proposed harmonisation of specific duty rates between partner states and verification of products where countries have sufficient production.
In last year's budget, EAC ministers of finance agreed on duty remissions on raw materials and inputs used by local manufacturers to facilitate domestic production.
Kenya was granted an extension of the current stay of application to import rice at a duty rate 35 percent or $200 per metric tonne, whichever is higher, for one year, instead of the EAC rate of 75 percent or $345 per metric tonne, whichever is higher, in order to meet local demand and enhance food security. It was also allowed to import wheat at a duty rate of 10 percent, instead of 35 percent for one year under the EAC Duty Remission Scheme.
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