EAC Common Market Suffers Setback

EAC Common Market Suffers Setback

by / 3 Comments / 57 View / 2nd August 2010

The recently launched East African Community Common Market has already suffered its first blow. Due to protests individual states have been allowed to run their own customs services and set their revenue targets, which appears far from the point of creating a ‘Common’ market.

The idea was to abolish the collection of tax at internal borders to ease the flow of goods in the regional market. So, it was pledged at the formation of the Common Market on July 1 that a Common Revenue Team would be established to act as a clearing house and collect custom taxes gathered from entry points such as seas and international airports where external parties enter the region. This would then be distributed to the five EAC member states.

Kenya, however, opposed the move and argued that the revenue sharing formula would benefit landlocked Uganda, Rwanda and Burundi and hurt Kenya’s own tax targets.

Due to these protests, the EAC secretariat made a U-turn on Wednesday 21st July and allowed national tax collection bodies such as the Kenya Revenue Authority (KRA) to maintain the right to collect custom revenues.

Peter Kiguta, the EAC Commissioner General in charge of trade and custom, observed that, “the plan to set up a common body was well-founded but it faced the dilemma of how to collect other charges like VAT, excise duty and other levies which fall outside our jurisdiction but are currently handled by national revenue bodies.”

He added that, “the proposal to collect and pool custom revenue was shelved after a study showed there would be institutional vacuums if the inner borders were removed.”

KRA, for example, not only collects custom revenues, but also fees levied by different parastatals such as the Kenya Bureau of Standards (KEBs) and the Roads Board. For KRA, custom taxes are critical in ensuring that it meets its targets because it accounts for nearly 40 per cent of Kenya’s revenue collection.

Last year, the tax man collected 36 per cent of the entire taxes. This comes at a time when Kenya is relying heavily on KRA to fund a huge portion of its nearly KES1 trillion (US$12.4 billion) budget this financial year.

Further problems have been caused by the fact that the national bodies have also been slow interlinking their information systems. The concept therefore appears to be largely untenable.

Moreover, the EAC Customs Management Act states that only the country where the imported service or goods are finally consumed has the mandate to collect the import duty.

So, under the new IT-aided system that the Secretariat has chosen, all revenue bodies in the region will be connected to common entry like seaports and airports to monitor movement of imports and visitors that come into the region.

The role of the internal borders will only be limited to verifying the specifications declared earlier and relaying the information to revenue authorities involved.

“In the absence of a Common Revenue Body, revenue sharing would mean Uganda, for instance, will refund Kenya for the import duty if imports to Kampala that were released at Mombasa port disappear along the way, having been diverted before crossing the national border,” said Kiguta

Although the EAC is an unyielding expression of solidarity and mutuality within the region, it would seem that what is good for the gander isn’t always what’s good for the individual goose.