Tax Harmonization to Address East Africans Fears

Published on 29th May 2007

“Will the East Africa Federation increase the size of matoke on our plates?” A Ugandan legislator asked me recently. Tanzanians are visibly scared of what they refer to as the “wabongo” labor force from Kenya.

 

As East African states prepare to read their annual budgets in June, businesses in the region are groaning under the weight of disjointed tax policy. President Museveni recently blamed the Kenya Revenue Authority (KRA) for contributing to the current fuel shortage in Uganda by demanding that Ugandan Oil companies pay taxes in Mombasa. This, according to the oil industry owners, will amount to double taxation by both Uganda Revenue Authority and KRA. Fish and other perishable products in Uganda are now threatened by this stand-off.

 

Kenya's business community is uncomfortable with the idea of free movement of goods to Kenya from Uganda and Tanzania, while Kenyan goods attract high import duties from the same neighbours. However, the East Africa Community planners argue that a sunset clause to this kind of arrangement is in place once Kenyan neighbours stabilize their industrial base. Another complaint from Kenyans touches on the animosity against the Kenyan labour force especially in Tanzania. Complaints range from harassment by immigration officials who keep checking for documentation to outright deportation for some.

 

In the East African market context, the Kenya government has not been friendly to local business.The country levies significantly higher tax on alcoholic beverages, petrol and cigarettes among other goods, giving a country such as Tanzania a comparative advantage. So far, 75% of the cost of an average beer in Kenya is tax which drives most Kenyans to seek alternatives that are largely outlawed by the same government. Taxes in Tanzania are lower, giving consumers and investors (as well as smugglers) an incentive to do business in Tanzania. The Kenya taxation system costs the government huge expenses in the fight against illicit brews and smuggled goods.

 

East Africans will enjoy the benefits of a united market if the community facilitates a harmonized taxation policy that will lead to competitive prices. Instead of our governments diverting security services to policing illicit brews and smuggled goods, they can opt for a cheap alternative of lowering the taxes to facilitate affordability. It is imperative that East African citizens be prepared to set up businesses that operate beyond village and city levels and address the larger market. Businesses that already operate across the borders ought to be given more incentives because their goods and services are already creating a sense of one community through uniform tariffs.

 

We can increase food on our tables by tapping into the numerous latent business ideas that are not fully exploited. For instance, it will be easier to eradicate hunger in this region if we adopted the Ugandan diet-  lwombo whose ingredients include, traditional vegetables, matoke, cassava, potatoes, nduma, and boiled chicken/beef/goat meat wrapped in banana leafs. Most of the time, East Africans claim they are faced with hunger when they experience a maize shortage! The Ugandan agricultural industry will thrive churning out as much matoke as possible. Kenya could position itself as a centre for education to churn out a high quality labour force for the region as Tanzanians focus on their huge mineral base to position this region on the continent effectively.

 

If the cell phone sector is already reaping benefits from a unified tariff system in East Africa, why are East African policy makers slow to see the benefits of tax harmonization?

 

This article first appeared in the Business Daily, a publication of Nation Media House


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