The Fiscal Regime under the EAC Common Market
•Traders to continue paying VAT, Consumption Tax and Withholding Tax on goods originating from EAC Partner States On July 1,2009. East African Community (EAC) Member states started implementing the Common Market Protocol. This implies Rwanda, Uganda, Kenya, Tanzania and Burundi entered into a single market with free movement of factors of production based on the principles of non discrimination, most favored nation and transparency.
Some of these rights include free movement of goods, persons and labour.
The EAC citizens also have the rights of establishment and residence as well as free movement of services and capital.
There has been misconception among the public that under the Common Market, all goods imported into Rwanda or other member states are exempted from taxes. This is not the case however; as taxes on international trade will remain save for import duty which remains at 0% on goods from the community that comply with the rules of origin criteria.
If a trader for example imports juice or biscuits that are manufactured in Uganda (an EAC member state) and have a valid certificate of origin, RRA will not collect import duty (a tax levied on goods imported into the country) on such goods as long as it is proved the goods are originating from the region.
In Rwanda, issuance of certificates of origin has been decentralized to the RRA Gikondo Customs department and at all border posts including, Gatuna (Rwanda-Uganda border) and Rusumo (Rwanda-Tanzania border). The service will soon be introduced at the Rwanda-Burundi border.
While import duty was scrapped, traders will continue to pay other domestic taxes due on goods including Value Added Tax (VAT) of 18 percent, consumption tax (excise duty) as well as withholding tax of 5 percent.
However, the withholding tax mentioned above is exempt for people who have a tax clearance certificate (Quitus Fiscale).
Free movement of goods under the Common Market
The Common Market Protocol stipulates that “The free movement of goods between the Partner States shall be governed by the Customs Law of the Community as specified in Article 39 of the Protocol on the Establishment of the East African Community Customs Union”.
On 1st July, 2009, Rwanda commenced the implementation of the EAC Customs Union and started levying zero percent import duty tariff on goods originating from the Partner States, applying the Common External Tariff and the East African Customs Management Act and Regulations.
“Implementation of the Customs Union is progressive and a case in point is the internal tariff elimination on intra regional trade which took 5 years that is to say, from 1st January 2005 to 31st December 2009,” the RRA Commissioner General, Mary Baine explains.
Removal of VAT, Consumption tax (excise duty) and Withholding tax will be effected upon realization of a fully fledged customs union which is yet to materialize. The following will be envisaged under a fully fledged Customs Union:
•Shifting of borders between Partner States to the peripheral
•Collection of duties and taxes at the point of entry into the Customs Union Territory
•Agreeing on the revenue sharing mechanism;
•Establishment of a regional authority to administer the Customs Union
•Elimination of rules of origin on intra regional trade.
In a fully fledged Customs Union, goods from Nairobi to Kigali will not attract any duties and taxes will be considered just as goods coming from Huye, Southern Province or Musanze, Northern Province.
Harmonization of tax policies and laws
The EAC Common Market Protocol provides that “The Partner States undertake to progressively harmonize their tax policies and laws to remove tax distortions in order to facilitate the free movement of goods, services and capital and to promote investment within the Community”.
Harmonization of domestic taxes is being handled under EAC Framework by the Fiscal Affairs Committee(Technical Committee on tax harmonization) and Fiscal Affairs Committee has established Technical Working Groups on Value Added Tax, Excise Tax and Income Tax develop a harmonized legal framework on tax laws and a roadmap for the harmonization process.
It should also be noted that the double taxation and the prevention of fiscal evasion with respect to taxes on income (DTA) was agreed upon by the Partner States and is awaiting legal input from the Attorney Generals Before approval by Council.
RRA emphasizes that, the implementation of the EAC Common Market has not changed the existing fiscal regime and the anticipated changes will progressively be realized as we enter into a fully fledged Customs Union and the harmonization of tax policies and laws finalized.