PUBLISHED ON October 17th, 2014

Expert says EAC dragging feet on double tax system

East African Community (EAC) member States are to blame for the delay in the harmonisation and standardisation of the region’s tax system, an industry expert has said.

Ashif Kassam, the executive chairman of RSM Ashivir, says the regional trading block is losing time on the elimination of double taxes.

“Tax policies should be common to each of the partner States. It is important that governments move with speed to avoid losing time. Let us standardise our tax systems, ease movement of labour and eliminate double tax elements. Let us implement the double tax system,” he said at the sidelines of the ongoing East African Business Summit in Kigali.

Mr Kassam called for enhanced pace of integration, but warned that plans to establish a common currency should be carefully thought out to avoid mistakes that have happened in the European Union.

“We already have a Single Custom Territory. My concern is in the implementation of the Single Monetary Union. We are at different stages of development as a region. We have different tax collection systems and having a common currency will be a big risk like what happened in European Union and the economic recession. However, let us do the rest of integration quickly,” he said.

The tax expert emphasised that differences in tax regimes and particularly in the rates and how governments administer the levies needed to be addressed.

In Kenya Value Added Tax (VAT) is charged at 16 per cent while Tanzania, Uganda, Rwanda and Burundi charge the tax at 18 per cent.

Kenya has been under pressure to raise its VAT charges to 18 per cent but the tax expert says increasing the tax burden, especially on businesses, would not be conducive.

“Kenya’s tax collection stands at 25 per cent of GDP. It is among the world’s highest standards. Increasing tax in Kenya will mean he government will be taxing businesses more. Tanzania and the rest of the member states have to increase their tax base by widening the tax net rather than increasing VAT,” he said.

Mr Kassam said the region could still embrace a single VAT system even with the different VAT billing.

“We have double tax treaty of which is 10 years old. We need to create the will and policy around tax procedures.

“If huge companies both global and local are merging then we need to implement the tax system. If one country does not want to implement the double tax treaty, then the four others should move and implement it,” he added.

Mr Kassam noted that weak tax systems encouraged businesses and individuals to cheat.

“We need to link tax systems to businesses or personal PIN numbers. Tax authorities need to target wealth in bank accounts, real estate investments and the stock exchange and profile every tax payer through PIN number and ensure they pay right tax,” he said.

A single tax system, Mr Kassam said, would also eliminate goods in transit fraud.

“This is a good system to capture cheats. Large corporations are not complaining on the single tax window. Only those bending the law are complaining. People who want to sell goods in transit in Kenya are the ones complaining,” he said.

Source:: Business Daily

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