PUBLISHED ON July 25th, 2014


East African governments have used taxes to cushion their local industries on the one hand and encourage imports that support key sectors, such as infrastructure and energy, on the other, in a balancing act that gives fresh impetus to implementation of the Common Market Protocol.

In budget proposals announced on Thursday, Kenya, Uganda, Rwanda and Tanzania have either reduced or removed duty on imports for key sectors such as energy, communications and infrastructure.

The push to build infrastructure, ease the cost of doing business and fast-track the flow of revenues from the nascent oil and gas discoveries in the region have seen the four governments loosen tax policy to allow more trade with their neighbours and foreigners as well.

“Massive budget allocations by East African countries to infrastructure development are a pointer to the seriousness with which they are focusing on this key aspect of the economy,” said Rishab Thakrar and Ravinder Sikand of Deloitte East Africa in an analysis. “It was never like this before.

“The trend is a pointer to the realisation of the importance of infrastructure and its multiplier effect on the overall economic growth and development of the region.”

Rwanda has reduced taxes on imported motor vehicles, especially tractors, heavy trucks and public transport buses.

Tanzania has taken a similar route, reducing import duty from 25 per cent to 10 per cent on buses that carry more than 25 passengers for a period of one year.

Regional integration aims at easing trade and stopping revenue losses suffered by companies doing business in the region. However, frustration has been growing among businesses in landlocked countries such as Uganda and Rwanda, which are paying a heavy price for unnecessary and costly trade barriers, usually erected by regulators.

In order to remove some of these bottlenecks, Kenya announced it was reducing administrative barriers by abolishing the requirement for Customs security bonds on importation of industrial sugar and wheat.

Uganda has taken a similar route by eliminating transit bonds on goods and introducing a common payment system that is aimed at enhancing regional integration.

Business people have been opposed to the bonds, which are equivalent to the price of the imported goods and are paid in advance. They argue that it is difficult to raise the additional money on top of paying for the goods and clearing import duties.

Kenyan manufacturers praised the decision to remove the bonds, saying it will eliminate obstacles in the clearance of white refined sugar.

Kenya is a net importer of industrial sugar, which is a critical raw material for the food and beverage sector and the pharmaceutical sector,” said Betty Maina, the chief executive of Kenya Association of Manufacturers. “The removal of these bonds will reduce the cost and burden of sourcing this raw material.”

Source: The East African

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