Lack of uniform transfer pricing legislation in the region is affecting trade in the East African Community (EAC), business leaders have said.

The leaders made the recommendation at the just-concluded East African Business Summit in Kigali last week. They urged regional governments to harmonise their transfer pricing laws, arguing that the absence of such legislation affects investment opportunities across the region.

The business leaders advised governments to harmonise their laws in accordance with the Organisation for Economic Co-operation and Development (OECD) to enable companies to engage in cross-border trade more efficiently.

Anne Eriksson, regional senior partner, PricewaterhouseCoopers (PwC), said uniform tax laws and procedures will promote trade between regional firms and support growth initiatives among EAC member states.

Eriksson urged partner states overcome their fears and address the question of protectionism if trade is to thrive across the region.

David Tarimo, a tax expert at PwC Tanzania, noted that transfer pricing regulations introduced by some partner states recently were making it difficult for companies within the bloc to trade with one another.

He noted that having different laws could lead to market distortions and hurt regional economies.

Tarimo said it is important to have a law that reflects the current business environment and which facilitates compliant businesses to move products in the EAC without hindrances.

Business leaders were also not happy that some EAC tax authorities are imposing huge penalties relating to transfer pricing adjustments, which they say eats into their profits.

Speaking at the summit Joseline Ogai, the acting commissioner for technical support services at the Kenya Revenue Authority, admitted that EAC states’ laws on transfer pricing differ in some aspects.

“Each country has its own OECD regulations; some are following UN and International Monetary Fund rules, while others want to have their own rules. However, we must start moving towards similar practice, while taking into account our technical differences on all exports,” Ogai explained.

According to Richard Tusabe, the Commissioner General of the Rwanda Revenue Authority, Rwanda is currently reviewing its OECD-based transfer pricing rules and is drafting guidelines, a move that will allow for more detailed regulations to be put in place.

He, however, said there was need to put in place a model that is business-friendly, and which will cater for the various business models across sectors.

VAT on services

Meanwhile, regional businesses are calling for the scrapping of value added tax (VAT) on services by foreign labour “to encourage free movement of services across the region”.

Participants at the summit noted that partner states impose VAT on both imported and exported services, which, according to themn, is limiting free movement of skills across the region.

According to a PwC survey on EAC’s 2014 fiscal policy, VAT on international services that can be equated to exports is going up in EAC, especially in Rwanda and Tanzania.

Equally, input tax recovery on imported services in Rwanda and Uganda also serves as a threat of intra-regional trade and implementation of the common market protocol, the report indicates.

“Withholding tax rates across the region are still high (15-20 per cent), and even once double tax treaty is in force, it will still apply at 5 per cent, which increases the cost of doing business in the region,” it added.

The survey also indicates that excise duty is increasingly being extended to services, thus suffocating businesses. This has forced businesses to advocate for a tax waiver on intra-EAC payments on services.

Tusabe assured business leaders that the government is working with stakeholders to ensure that ambiguities with the law are addressed.

“On exported services, the law requires that you can only be zero-rated on exported services if you are rendering service outside the geographical boundary of Rwanda.

“However, we are currently reviewing that particular Article of the law so that is reflects the fact that exported services outside Rwanda will have to be zero-rated. The revised law will be in place by the end of this year,” Tusabe revealed.

He added that they are also studying the issue of VAT on imported services.

“We are having discussions with multinationals that operate in this country so that the law takes into account the business models of various businesses across the region,” he said.

He noted that they would consider easing VAT on imported services for EAC nationals same as it applies on multinationals.

Source:: The New Times

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