Excise duty rates are yet to be harmonized in the East African Community, hindering the free movement of goods and services within the Common Market. The reasons for this are historical and fiscal — with states applying different rates in various ways, even for as long as 60 years, without changes.

These reasons are not inconsequential, but a common excise management law that harmonizes policies would go a long way towards reducing these inequalities.

Ultimately, our economies would benefit — as will government revenue coffers.

States use excise duty as a revenue-boosting tax, which partly explains why harmonization is such a thorny issue.

Their budgetary needs determine the rates. But the states also differ with regard to their ability to handle excise taxes.

Legislation in Tanzania and Uganda dates to the 1950s. Kenya, Tanzania and Uganda have specific procedures for approval to trade in excisable products.

Burundi has no excise taxes Act while Rwanda does not have formal approval procedures.

Black market
States use different definitions of products for purposes of levying excise duty. For example, the definition of beer in Kenya is based on whether it is malt or non-malt but in Burundi it is the brand. Furthermore, states have different policies governing provision of excise duty remissions and refunds.

This has resulted in a black market for goods whose duty differential is significant enough to merit substantial trade. Traders support harmonization as it will create a level playing field and eliminate unfair competition caused by smuggling and diversion of excisable goods.

Bar unforeseen challenges, the EAC is on its way towards integration with its Customs Union and the Common Market Protocol having come into force in 2005 and 2010, respectively. Integration as per the treaty and protocol necessitates harmonization of taxes.

So far, Customs duties have been harmonized and discussions held regarding harmonization of other taxes within the Common Market. But excise duties are yet to be harmonized.

As the states limp towards excise duty harmonization, Kenya is moving forward with legislation of its own. It is drafting the Kenya Excise Management Bill, which will modernize the tax policy on excisable goods contained in the Kenya Customs and Excise Act Cap 472.

Kenya is one of the more developed economies in the EAC and should provide direction on matters of integration and regional development. But excise duty harmonization is slow and doubtful with conclusive discussions yet to be undertaken.

This then begs the question: In line with the principles and provisions of the EAC Common Market Protocol on integration, shouldn’t Kenya be on the front lines agitating for harmonization of excise duties in the region as opposed to developing an in-country Act?

Source: The East African

Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of TradeMark Africa.