Africa’s biggest trading blocs are next month set to sanction the creation of a grand free trade area while still seeking consensus on tariff liberation and rules of origin of manufactured products.

The Common Market for Eastern and Southern Africa (Comesa) has been negotiating for agreeable tariff offers and the criteria for determining the national sources of products with its counterparts—Southern African Development Community (Sadc) and the East African Community (EAC).

This comes at a time when all partner states within the East African Community (EAC) are undertaking to harmonize their tax systems despite the gap brought about by different stages of development of its members.

It is hoped that this harmonization will help in preventing any national tax measures that could have a negative effect on the functioning of the planned common market arrangement.

The EAC protocol calls for harmonization and Uganda, as a partner state has been part of the policy formulations since last year with the objective of achieving harmony or uniformity in respect of VAT, Excise duty and other domestic taxes.

It is hoped that the harmonized tax regimes will help in eliminating price distortions that encourage tax evasion and allow more investment in the region, Uganda in particular. The harmonization will allow efficient allocation of resources – and encourage comparative advantage among member states. The process will enable states and its peoples excel in those aspects where they have comparative advantage.

For instance, the processes would encourage agrarian regions to concentrate on farm products that are lucrative within the regional market.

The objective of harmonization is to remove market distortions among EAC countries in a sense that local products churned out of local inputs should be subject to low taxes across the value chain. The final consumer would as well not feel the pinch of the tax inherent in the product consumed.

When harmonized tax regimes prevail within the region, the free movement of people, goods and services will greatly spur growth and investment opportunities that will lead to improved living standards among the populace within the community.

“The VAT and Excise Duty regimes are similar across the Partner States. What is required to harmonize are the rates,” says Cyprian Chillanyang, Assistant Commissioner, Business Policy, Uganda Revenue Authority (URA).

“However, it is not realistic to expect uniform tax regimes in the region when Partner States still have their tax laws being made by their respective Parliaments,” he adds

That said, uniform tax rates have the following advantages: reduction of smuggling, encouragement of sharing of business expertise, he affirms.

These would further encourage local investment, increase values addition, with spillover effects of increased job creation due to increased demand of high value goods and services among regional economic players.

As it may be, within the EAC, Uganda has committed to the performance criteria that require a fiscal deficit, including grants as a percentage of GDP of three per cent, presenting value of public debt as a percent of GDP of an utmost 50% as well as the revenue-to- GDP ratio of now about 11.7% after rebasing.

The economy having been re-based last year means a reduction in these ratios. For instance, the already low revenue-to-GDP of 13 per cent would reduce further but, at same time, the lower debt to GDP ratio would mean more room for debt.

Uganda, specifically through its tax authority will be at the fore front in a bid to close the revenue deficit by mitigating markets challenges in an effort to grow its revenues, widen the tax base, and build partnerships to enhance its performance among others.

According to Silajji Kanyesigye, Assistant Commissioner, Compliance Management at URA, the reduction in GDP ratios should cause no worry since the revenue base is expanding.

“We are undertaking a holistic approach to address revenue growth challenges. Our willingness to partner and offer advisory services has seen domestic revenues grow to over 50% and still growing. We will see a rebound in international taxes as well,” Sirajji adds.

Informal and Formal Approaches

Recent efforts have been made through partnerships with local and urban authorities like KCCA, municipal and local councils coupled with the pilot project – TREP (Taxpayer Registration Expansion Programme) that has seen ministries of trade, local governments KCCA and the registration services bureau bring more businesses and people on the tax register

From a policy approach, tax bills have been written so that no regulator or licensing authority issues a practicing license to an unregistered tax payer- meaning one will have to fulfill his tax obligation to carry on his or their trade and any one claiming an expense value to the tune of one million will have to offer supporting documentation (receipt/ invoice) form a registered tax payer- one with a Tax Identification Number (TIN).

Further efforts have been undertaken to sensitise the business community to register for tax purposes through the commissioner general meeting the business community in down town Kampala and immediate districts to discuss issues about their tax obligations.

The same was done during the Kyankwanzi Retreat that targeted District Internal Security Officers, Chief Administrative Officers, and Resident District Commissioner among other political leaders.
These efforts will be complemented by continuous tax education through print literature available in all local dialects as regards domestic taxes, and the establishment of a specific unit within the international tax division to deal with multinational corporations on issues of transfer pricing among others.

Besides, a public sector office has also been established to deal with government agencies and ministries – since government is a major tax payer and consumer of supplies.

“The low GDP ratio figures were exacerbated by the numerous exemptions granted to attract investor but their removal will see growth in revenue to boost our economy,” says Sirajji

“Harmonized taxes will permit private investment and spur job creation,” says John Omongin, a tax practitioner with Abacus Associates Certified Public Accountants.

Charles Senkuule a mobile handsets retailer on Luwum Street, believes the harmonization would only make sense to him if he has to part with little of his hard earned money to support himself and family. “That is my wish,” he says.

According to a report by Uganda’s EAC ministry and Trade Mark East Africa on ‘Tax Systems and Harmonization Report’, member states are more optimistic to convey the spirit of harmonization into the consciousness of the administration and the people.

However, the indecisiveness of some member states and trading blocs to table their own tariff proposals has delayed the launch of the Tripartite Free Trade Area (TFTA).

The negotiations for the single market were launched in Johannesburg in 2011. It remains to be seen if the EAC is will move to achieve social and economic integration.

Source: The CEO Magazine

Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of TradeMark Africa.