EAC Countries' Budgets for 2018/19 at Glance
On 14th June 2018, 4 of the EAC Partner States namely, Tanzania, Kenya, Uganda and Rwanda jointly unveiled their Budgets for the Fiscal Year 2018/2019. While Burundi is yet to align its Fiscal Year with other EAC Partner States, the Republic of South Sudan has not started to implement EAC commitments.
Usually the 4-EAC Partner States (Kenya, Tanzania, Uganda and Rwanda) unveil their budgets on the same day on June every year after holding a Pre-budget meeting of Ministers of Finance in May, to agree on fiscal and tax issues.
Keeping stride with last year momentum, as it was in 2017/18, the theme of the 2018/19 Budget for all East African Partner States was “to build an industrial economy that will stimulate employment and sustainable social welfare”. To achieve that each country unveiled budget estimates which mainly focused on spending on infrastructure, promoting local manufacturing and creating employment opportunities.
Tanzania budget was Tshs32,476 billion (USD14.3bn) against Tshs31.712 billion (USD14.3bn) in 2017/18, Uganda budget was UGX 32,702 billion (USD8.5bn) compared to UGX29,008 billion (USD8.2bn) of 2017/18, and Rwanda budget Rfw 2,444billion (USD 2.8 bn) compared to Rwf2,115billion USD 2.58bn of 2017/18. Kenya budget was KES 3, 074billion (USD30bn) compared KES 2,643 billion (USD 26 bn) of 2017/18.
Aiming at promoting local manufactures, creating employment opportunities and enhance revenue collection, the Governments of the 4 EAC Partner States (Tanzania, Kenya, Uganda and Rwanda) came up with various tax changes as follow:
In line with the decisions of the Pre-Budget Consultations of the Ministers of Finance from the EAC Partner States, which held their meeting on 4th May 2017 in Arusha, Tanzania, the Governments introduced following changes with regard to EAC Common External (CET):
Wheat Grain & Barley
The EAC Partner States agreed to continue granting duty remission and apply a duty rate of 10% instead of 35% for wheat grain falling under HS Codes 1001.99.10 and 1001.99.90 for one year. This measure was taken given the fact that the EAC region has no adequate capacity to produce enough wheat to satisfy the demand. Uganda grant stay of application to 10% instead of 25% for barley.
Paper and paper products
Tanzania decided to grant duty remission and apply a duty rate of 15% instead of 25% on papers used to manufacture text books and exercise books. Papers involved include: (HS Codes 4804.11.00; HS Codes 4804.21.00; HS Codes 4804.31.00;) and (HS Codes 4804.41.00.) The measures are expecting to make books available at affordable prices particularly to schools. Kenya on its part proposed to increase import duty on paper and paper board from 25% to 35%. The ranges of paper and paper board will be featured in the EAC Gazette of June 2018.
Uganda has granted duty remission and apply 10% instead 25% on the following paper products: Unbleached Kraftliner in rolls or sheets (HS Code 4804.11.00); Unbleached sack kraft in rolls or sheets (HS Code 48042.21.00); Other unbleached kraft paper and paperboard (HS Code 4804.31.00); and Other folding cartons, boxes and cases, of (HS Code 4819.20.90). Uganda also proposed duty remission of 0% instead of 25% on Paper and paperboard coated, impregnated or covered with plastics (excluding adhesives) (HS Code 4811.59.90).
Gypsum Board & Gypsum Powder
Tanzania granted duty remission and apply a duty rate of 0% instead of 10% on papers used as raw materials for manufacturing of gypsum boards (HS Code 4805.92.00). The measure is intended to promote local manufacturing of Gypsum Boards in Tanzania. In addition, Tanzania continues to grant stay application on EAC-CET rate on Gypsum powder (HS Code 2520.00) and apply a duty rate of 10% instead of 0%. The move is intended to protect local producers of Gypsum powder against imported ones.
Tanzania imposed a duty rate of 35% instead of EAC-CET rate of 100% or USD460/MT whichever is higher, on consumption sugar, which is imported under specific arrangements to cover shortage in the domestic market. The move will protect local sugar millers against cheap imports. Rwanda imposed a duty rate of 25% instead of EAC -CET rate of 100% or USD460/MT whichever is higher.
Sugar for Industrial Use (HS Code 1701.99.10)
EAC Partner States agreed to continue grant duty remission of 10% on sugar for industrial use. The measure is based on the fact that the EAC region has no local production of sugar for industrial use.
Tanzania granted duty remission and apply a duty rate of 10% instead of 25% on Self Adhesive Label (HS Code 4821.10.90) for one year. The measure is intended to promote competiveness of domestic industries by lowering production cost.
Aluminium Barrier Laminate
Tanzania granted duty remission and apply a duty rate of 0% instead of 25% on Printed Aluminium Barrier Laminates (ABL) (HS Code 3920.10.90) for one year. The aim of this measure is intended to reduce production cost and promote competitiveness of domestic industries producing toothpaste.
Crude Palm Oil & RBD Palm Stearin
Tanzania proposed to stay of application of the EAC-CET rate of 0% and apply a duty rate of 25 percent on Crude Palm Oil (HS Code 1511.10.00). According to Government the measure is intended to promote local production of oil seeds and edible oil taking into account the available opportunities to increase its production. Furthermore, the move is expected to increase employment both in the agricultural and industrial sector.
However, in effort to ensure availability of RBD Palm Stearin for stand-alone soap industries Tanzania grant duty remission and apply a duty rate of 0% instead of 10% on RBD Palm stearin (HS Code 1511.90.40)
Crude Edible Oils
Tanzania granted stay application of EAC CET rate of 0% or 10% and apply a duty rate of 25% on crude edible oil from sunflower oil; palm oil; groundnuts; olive oil, maize corn flower for one year. The Government intention is to promote the production of edible oils by using locally produced seeds as well as protection of domestic producers and create both employment and income to the farmers.
Semi refined & refined double refined edible Oil
Tanzania granted stay of application of EAC-CET rate of 25% and apply a duty rate of 35% for one year on semi-refine and refined/double refined edible oil such as sunflower oil, palm oil, groundnuts oil, olive oil, maize corn oil. The measure is intended to promote the processing of edible oil in the country using locally grown seeds and save foreign exchange used in the importation of edible oil. Kenya proposed to increase import duty of vegetable oil from 25% to 35% or USD500/MT, whichever is higher. The measure is intended to protect local.
manufacturers. Uganda on its part decided to stay application on EAC-CET and apply a duty rate of 10% instead of 0% on partly refined base oil (HS Code 2710.19.10).
The move to increase import duty on vegetable oil though welcomed by some quarters, there is also fear that the prices of edible oil may increase due to the fact most of edible oil consumed in the region is imported from outside the region. Also having different import duty rates among EAC Partner States my fuel trade disputes and disrupt intra-EAC trade on edible oil and related products.
Nails, Tacks, drawing pins & Corrugated Nails staples
Tanzania granted stay of application of EAC –CET and instead applies a duty rate of 25% or USD350 per metric ton, whichever higher, for one year on nails, tacks, drawing pins & corrugated nails staples (HS Code 7317.00.00) other than those heading 83.05 and similar articles of iron or steel, whether or not with heads of other materials. The objective is to protect local producers of these products against imported cheap products.
Kenya and Tanzania granted stay of application of EAC-CET and apply duty rate of 25% or USD1.35 per kilogram, whichever is higher on Safety Matches (HS Code 3605.00.00). The measure is aimed at protecting the local industries in the region.
Poly Vinyl Alcohol
Kenya, Uganda and Tanzania decided to reduce a duty rate of Poly Vinyl Alcohol (HS Code 3905.30.00) from 10% to 0% since the product is a raw material for manufacturing of paints and textile fabrication.
Pesticides, fungicides, insecticides and acaricides
Tanzania and Kenya granted duty remission at 0% on inputs used to manufacture pesticides, fungicides, insecticides and caricides. The measure is intended to promote investment in the local production of these important inputs which are required for improvement of agriculture. In addition, Kenya has also made a proposal to reduce import duty of aerosol cans, which are used in the packaging of insecticides, and acaricides from a duty rate of 10% to 0% for period of one year.
Uganda and Tanzania granted a stay of application of EAC-CET on potatoes (HS code 0701.90.00) and applies a duty rate of 35% instead of 25% for one year. The measure is intended to protect local production of potatoes. 5
Rwanda continues to grant stay application of EAC-CET on rice and apply 45% or USD345/MT whichever is higher instead of 75% or USD345/MT. Kenya imposed a duty rate on rice of 35% or USD200/MT whichever is higher instead of 75% or USD345/MT
Uganda and Tanzania granted stay of application of EAC-CET on ranges of confectionary products and apply a duty rate of 35% instead of 25% for one year. The products include chewing gum (HS Code 1701.10.00); sweets (HS Code 1704.90.00); chocolates (HS Code 18.06); biscuits (HS Code 19.05); tomatoes sauce (HS code 2103.20.00). The measure intended to protect local producers of the products as there is sufficient capacity to produce them in the region.
Uganda and Tanzania granted stay of application of EAC-CET on mineral water (HS Code 2201.10.00) and apply a duty rate of 60% instead of 25% for one year. The measure is intended to promote the local industries.
Meat & Edible Offal, Sausages and Similar products
Tanzania and Uganda granted stay of application of EAC-CET on meat and edible offal under chapter 12, and sausages & similar products (HS Code 1601.00.00) and apply a duty rate of 35% instead of 25% for one year. The measure is intended to promote local processing and value addition on meat.
Textile & footwear
EAC Partner States agreed to provide duty remission on a selected list of raw materials and industrial inputs for the manufacturers of textiles and leather sector and creating employment. In addition, the EAC Partner States proposed import duty of 35% or USD5 per kg whichever is higher, for textile and 35% or USD10 per pair whichever is higher for footwear. Rwanda proposed to impose import duty rates of USD4/kg for second hand clothes and USD5 for second hand shoes.
In bid to stimulate the tourism sector, the EAC Partner States have agreed to amend the Fifth Schedule of the EAC Customs Management Act and provide import duty exemption on various types of motor vehicles for transportation of tourists. These include sightseeing buses, and overland trucks imported by licensed tour operators. 6
Motor vehicles and tractors
Iron and Steel Products Rwanda granted stay of application of EAC-CET and apply a duty rate of 10% instead of 25% on road tractors for semi-trailers, motor vehicles for transport goods with gross weight exceeding 20tons and buses for transportation of 50 persons and above. Rwanda also granted stay application of EAC-CET and apply a duty rate of 10% instead of 25% for motor vehicles for transport of goods with gross weight exceeding 5 tons but not exceeding 20tons. In addition it proposed to impose 10% instead of 25% on busses for transportation of more than 25 persons.
Uganda grant stay of application on EAC-CET and apply a duty rate of 0% instead of 10% on road tractors for semitrailers (HS Code 8701.20.90). Also Uganda proposed a duty rate of 0% instead of 25% on Motor vehicle for transport of goods with gross vehicle weight exceeding 5 tons but not exceeding 20 tons (HS Code 8704.22.90). Other measures was to reduce import duty from 25% to 0% on Motor vehicles exceed 20 tons (HS Code 8704.23.90); reduction of import duty from 25% to 10% on buses for transportation of more than 25 persons (HS Code 8702.10.99). On non-tax revenue measure Uganda ban importation of motor vehicle of 15 years and above from the year of manufacture and expanded the scope of environmental levy to include goods vehicles over 7 tones.
Stay of application on EAC-CET on motor vehicles for transportation of goods and passengers is likely to frustrate efforts of local motor vehicle assemblers in the region who will face stiff competition from similar imported vehicles under lower duty rate than agreed EAC- CET.
EAC Partner States agreed to grant a duty remission on importation of completely knocked down (CKD) kits at a rate of 10% for a period of one year. The measure is intended to encourage local manufacturing and assembly of motorcycles.
Iron and Steel Products
Kenya has proposed an increase of import duty of steel and iron products from 25% to 35%. The range of the products affected will be contained in the EAC Gazette to be issue end of June 2018. In addition, Kenya has proposed for a stay of application of EAC- CET and applies higher import duty on flat-rolled metal products, metal bar, electrodes and prefabricated buildings and rods of steel. To ensure sector get enough raw materials Kenya went further to propose the imposition of an export levy of 20% on copper waste and scrap metals.
Uganda introduced a specific duty at a rate of USD 200/MT or 25% whichever is higher on ranges of flat rolled products of iron or non-alloy steel products (HS Code 7210.11.00; 7210.20.00; 7216.50.00). Uganda also introduce specific duty rate of USD250/MT or 10% whichever is higher on Flat rolled products of iron or 7
non-alloy steel (HS Code 7210.41.00; HS Code 7210.49.00; HS Code 7210.61.00; HS Code 7210.69.00; HS Code 7210.70.00; HS Code 7210.90.00; HS Code 7212.30.00; HS Code 7212.40.00; & HS Code 7212.50.00). To protect local manufacturers of galvanized wire (HS Code 7217.20.00) Uganda decided to impose a duty rate of 25% instead of 0% for one year.
Value Added Tax (VAT)
Value Added Tax (VAT) being one of domestic taxes which are still under control of each country mandate, each Government made different changes to suit their budget objectives.
VAT exemptions on- ranges of products
EAC Partner States introduce new exemptions of VAT on ranges of products with aim of promoting investment on the targeted sectors. Kenya has exempted following products from VAT: purchase of equipment for construction of grain storage facilities, purchase of raw materials for animal feeds production, importation or local purchase of parts for computer assembly.
Also based on VAT Act 2013, VAT at 16% on fuel products (petrol, diesel, kerosene and jet fuel was introduced, with a three-year grace period expected to end 2016. However Government extended exemption for further two years to 2nd September 2018. It is likely that starting 2nd September 2018 petroleum products will be taxable at VAT rate of 16%.
Tanzania introduced VAT exemptions on few products such as packaging materials used by local manufacturers of pharmaceutical products; imported animal and poultry feed additives and sanitary pads. The measures are intended to reduce the cost of the products and make them available at affordable prices.
New VAT measures in Uganda include: exemption on the supply of holy bibles and Qurans, exclude goods for private use from the scope of the application of the VAT deemed payment provisions and clarify the obligation of foreign base remote service providers to account for VAT in Uganda.
However, the policy of using VAT exemptions instead of zero rating will unlikely achieve intended objective of the Government because VAT exemptions on products will definitely increase final prices of the locally produced similar products since producers cannot claim VAT inputs incurred in producing the exempted products.
Given the fact that excise duty is among domestic taxes still not harmonized, each EAC Partner State had liberty to come up with their own changes.
Petroleum Product Fuel
Tanzania did not do any changes on excise duty on petroleum products (petrol, diesel and kerosene). Current excise duty of 2017/18 will be applied in the 2018/19 financial year.
Kenya increased excise duty rates on illuminating kerosene from KES7,205 per litre to KES10,305 per litre with aim of discouraging the use of kerosene as a contaminant in other fuels. Uganda on its part imposed excise duty of UGX100 on diesel and petrol fuels.
Kenya has introduced excise duty of KES 20 per Kg on Sugar confectioneries and chocolates. It also increase excise duty on mobile transfer fees from 10% to 12%. The financial sector in Kenya was also hit by introduction of excise duty on transfer of KES 500,000 or more by banks/financial provider at 0.05%. Kenya also increase excise duty from 20% to 30% on private passenger motor vehicle exceeding 2500cc (diesel) and 3000cc (petro).
Uganda introduced various changes for excise duty. The changes include: reduction of excise duty on soft drinks from 13% to 12%; introduction of specific excise tax rate on spirits and wines; introduction of excise duty on opaque bear (Kibuku); introduction of excise duty on cooking oil of UGX 200 per litre; introduction of excise duty of 15% on all juices; and proposed harmonized excise duty of 12% on all telecommunication services (phone talk time, mobile phone, land lines and value added services). Other excise tax measures are increase excise duty on money transfer and withdraw services from 10% to 15%, imposition of excise duty of UGX 200,000 on motor cycles at first registration; 1% on mobile money and daily levy of UGX 200 on OTT.
Tanzania did not make any changes on excise duty to locally manufactured goods. Excise duty of 2017/18 financial will be applied in the 2018/19 financial year for locally manufactured goods. However, Tanzania increased by 5% excise duty non-petroleum imported goods (excisable goods such as alcohol, soft drinks, juice and tobacco). The 5% increment on on-petroleum imported goods is intended for adjustment for inflation. However, charging different (lower) excise duty on locally products against higher similar or like imported goods may open trade disputes between Tanzania and other EAC Partner States as the move will be considered discriminatory and against Principle of National Treatment under EAC Customs Union Protocol.
To enable the Government to obtain production data on excisable products from manufacturers in real time, Tanzania has introduced Electronic Tax Stamp system which will replace the current paper tax stamp. The electronic tax stamp will start from 1st September 2018. There is fear that if Government doesn’t make the electronic tax stamp deductible the system my increase cost of production and affect the price of excisable products in Tanzania.
Other Changes on Taxes and Levies
Corporate Income Tax
Tanzania has proposed reduction of Corporate Income Tax (CIT) rate from 30% to 20% for new investors in the pharmaceutical and leather industries from 2018/19 to 2022/23 to encourage new investors into two sectors.
Tanzania has proposed tax amnesty which is 100% remission of interest and penalty. The six-month tax amnesty will start from 1st July to 31st December 2018. The amnesty is intended to improve tax compliance by 10% and enable the Government to collect the outstanding principal amount.
Presumptive Tax for Resident Businesses
Kenya proposed to introduce a presumptive tax of 15% on the value of a single business permit or trading license fee for residents businesses whose turnover does not exceed KES 5 million in a year of income. The measure will replace the 3% Turnover Tax (ToT) and its implementation