- During the last quarter of 2022, the EAC hit an intra-trade value of $10.17 billion. This was a 20% proportion of intra-trade to world commerce.
- The revision of the EAC three-band structure aims at aligning the tariff rates.
- On July 1, 2022, the EAC enforced a new tariff structure that included a 35 percent duty on finished products imported into the region.
The East African Community’s $18.9 million trade plan is facing obstacles as partner states seek preferential tax treatment under the bloc’s revised Common External Tariffs (CET).
This development is threatening to jeopardize the implementation of the proposed four-band tariff structure. On July 1, 2022, the EAC Secretariat enforced a new tariff structure that included a 35 percent duty on finished products imported into the region.
The secretariat, in a report from January 2022, highlighted the potential benefits of the fourth band, arguing that a maximum tariff of 35 percent would discourage the frequent use of stay of applications (SOAs) by partner states.
EAC customs tariff
It claimed that adopting a mixed customs tariff structure would help promote intra-regional trade, investments, and employment creation.
However, a review of an EAC gazette notice from June 30, 2023, reveals that almost all EAC member states have sought preferential tax treatment through stays of applications and exemptions for various finished and sensitive items.
These products include vitenge, ceramic tiles, sugar, bread, toys, processed coffee and tea, ginger, jams, marmalades, jellies, sausages, chicken, meat, peanut butter, bread spreads, butter, fats and oils derived from milk, mineral water, toilet paper, exercise books, cooked potatoes, fresh or chilled tomatoes, and honey.
Fourth band product categories
The four-band tariff structure consists of zero percent import duty for raw materials and capital goods. It seeks 10 percent import duty for intermediate products not available in the EAC region. Further it proposes 25 percent import duty for intermediate products available in the EAC region, and a 35 percent duty on imported finished products. Sensitive items attract a duty higher than 35 percent according to the plan.
The purpose of the revised CET was to harmonize taxes on finished and sensitive items. It also sought to reduce the need for frequent requests for tax exemptions and stays of applications by member states. These tax exemptions have been hindering intra-regional trade for the bloc.
In September 2016, the EAC Council of Ministers raised concern over the frequent stays of applications by partner states. The ministers say the move creates distortion and undermines tariff harmonization.
Tax harmonization challenges
“The overall impact of the maximum CET rate will lead to increased intra-regional trade leading to greater economic growth and enhanced regional integration for all EAC partner states,” the bloc said.
The EAC claims that 35 percent duty on finished products can increase intra-EAC trade by $18.9 million. The surge in trade will trigger creation of 6,781 jobs, and boost the region’s tax revenues by 5.5 percent.
The revision of the EAC three-band structure will align the tariff structure and rates with global trade changes. It will also align taxes with the current economic environment in the EAC.
It safeguards revenues and eliminates the use of stay of applications to address limitations within the three-band CET structure.
The revised tariff structure will promote both intra and extra regional trade, further liberalize the market, and deepen regional integration.
Other anticipated benefits include employment opportunities, improved welfare, expanded trade and investment, and enhanced supply capacities and competitiveness.
The region has been recording increased trade volumes in the past few years.
During the last quarter of 2022, the East African Trade Council hit an intra-trade value of $10.17 billion, which represents a 20% proportion of intra-trade to world commerce.