Was the East African Common Market Protocol Dead on Arrival?

Article 83(2)(e) of The EAC treaty(1999) obliges the states to "harmonise their tax policies with a view to removing tax distortions in order to bring about a more efficient allocation of resources within the Community." In line with this provision, a Customs union was established in 2005.

The community was created by the EAC treaty of 1999 which set into motion a series of activities aimed at establishing a fully-fledged community with an economic union, monetary union and eventually a political union.

To further this agenda, a common market protocol was implemented from July 1, 2010. In this protocol, Article 32 obliges the partner states, comprising Burundi, Kenya, Rwanda Tanzania and Uganda, to undertake progressive harmonisation of their tax policies and laws on domestic taxes with a view to removing tax distortions in order to facilitate the free movement of goods, services, and capital and the promotion of investments within the community.

Five years since the common market protocol was implemented, not much tangible progress has been achieved in the area of harmonisation of domestic taxes. A case in point would be excise duty.

THE MESS THAT IS EXCISE DUTY;

The five partner states in the EAC have quite divergent laws on excise duty. For instance, while Tanzania, Kenya, Uganda and Rwanda have an excise Act, Burundi uses a ministerial directive to enforce excise duty.

Secondly, there is a disparity of excise tax structure with different partner states adopting a mixture of ad-valorem, specific and hybrid structures interchangeably.

The third example is excise duty remission schemes. Some of the partner states have implemented remission schemes that deliberately favour certain excisable products made from local raw materials. The latest entrant in this scheme is Kenya where recently a scheme that grants 90 per cent excise duty remission on beer made from local raw materials was implemented.

NO BENEFIT TO EAC MEMBER STATES;

While excise duty remission may not be entirely a bad thing, the manner in which the various partner states have gone about implementing their remission schemes has been discriminative.

Take for example beer manufactured in Uganda using Ugandan raw materials and then imported into Kenya. The product will be subject to the full range of excise duty in Kenya upon importation. A similar product manufactured in Kenya using local raw materials will be entitled to 90 per cent remission.

Given the fact that excise duty forms a significant portion of the price of alcohol products, the Ugandan product, therefore, becomes exorbitantly expensive in the Kenyan market.

Another example is the discriminatory structure of excise duty in Uganda with a four-tier specific structure that discriminates against imported cigarettes. Cigarettes manufactured in Kenya and exported to Uganda end up attracting as high as 36 per cent more excise duty.

This specific excise duty structure introduced in Uganda in the 2017 budget saw British American Tobacco (BAT) file a case at the East African Court of Justice (EACJ) seeking orders for Uganda to revise the Act on the basis that it was in violation of the EAC treaty and protocol.

JUSTICE?

The court granted an injunction in January 2018 stopping Uganda Revenue Authority (URA) from collecting the higher rates of excise on imported cigarettes. The case is still ongoing at the EACJ. In May 2019, the EACJ ruled that the actions by Uganda were in violation of the EAC treaty and protocol.

RETALIATION?

In 2017 Kenya had banned the importation of poultry products into Kenya due to an outbreak of Avian Flu Virus. Uganda retaliated by banning the importation of Kenyan poultry products into their country.

Upon the resolution of the outbreak, the countries agreed to allow the resumption in the trade of poultry products. Uganda, however, has sustained the ban on Kenyan poultry products.

It is estimated that over 35 tonnes of Uganda poultry are imported into Kenya every week. Given the porous nature of our borders, this figure could be as high as 50 tonnes per week.

Tanzania has also imposed stringent requirements for compliance from the Tanzania Food and Drug Authority which many players in the poultry sector have seen as deliberate efforts to bar them from accessing the market.

The most recent impact of such actions by Tanzania culminated in the 2018 burning of chicks imported into Tanzania from Kenya for being deemed non-compliant to the local poultry guidelines at a great loss to the importer.

We cannot overemphasise the vulnerability of the Kenyan poultry industry from the regional attack.

Is the East African Community a mirage or are we expecting too much?