East African Community: Harmonisation of taxes remains elusive

The efforts to harmonize taxes in the East African Community (EAC) have remained a challenging task despite being in motion for almost a decade. The goal of achieving tax neutrality for investments and trade, as well as preventing double taxation, has yet to be fully realized. Regina Navuga, the Program Coordinator at Seatini Uganda, shed light on the current status of tax harmonization in the EAC during a recent interview on CNBC Africa. The EAC, which started with the Customs Union, has progressed towards a common market, a monetary union, and aims for a political federation. The inclusion of new members such as Rwanda, Burundi, and the Democratic Republic of the Congo has strengthened the community's resolve to work collectively as a bloc. However, the differences in individual national tax systems among EAC member states present a significant obstacle. Variations in VAT rates, corporate taxes, and pay-as-you-earn rates create challenges for achieving tax harmonization. While Uganda imposes an 18% VAT rate, Kenya's rate stands at 16%, reflecting the disparities that exist within the region. The EAC has embarked on a journey towards harmonizing tax rates over time to boost competitiveness and facilitate trade negotiations. Despite initiating the process nearly a decade ago, the road to harmonization remains complex. The introduction of an external customs tariff and the adoption of policies and technologies to streamline tax processes indicate progress. However, challenges persist, particularly in reaching a consensus on agreed tax rates due to differing levels of economic development within the EAC region. The coalition of the willing and unwilling in trade discussions further complicates the path to tax harmonization. Regina Navuga highlighted the importance of addressing barriers such as non-tariff barriers and trade disputes among EAC member states, which hinder the harmonization process. Concerns over the free movement of certain goods and services within the region, as well as external factors like bilateral investment treaties, add layers of complexity to achieving tax harmonization in the EAC. The COVID-19 pandemic has also posed additional challenges, necessitating a collective reevaluation of the harmonization timeline. Despite the hurdles faced, Navuga remains optimistic about the progress being made in the EAC towards tax harmonization. She emphasized the need for continued dialogue and collaboration among member states to overcome the existing challenges and work towards a common tax framework. While a definitive timeline for tax harmonization may be elusive, the commitment to regional integration and economic development remains a driving force within the EAC.