IMPACT OF THE EAC CUSTOMS UNION PRESENTATION TO STAKEHOLDERS BY Kilungya, S.M. CUSTOMS SERVICES DEPARTMENT KENYA REVENUE AUTHORITY. EAC INTEGRATION PROCESS: Customs Union-2005 Common Market-July, 2010 Monetary Union- 2012 Political Federation-Ultimate
IMPACT OF THE EAC CUSTOMS UNION
PRESENTATION TO STAKEHOLDERS
CUSTOMS SERVICES DEPARTMENT
KENYA REVENUE AUTHORITY
EAC INTEGRATION PROCESS:
Common Market-July, 2010
Monetary Union- 2012
Fast tracked as per decision of the Summit
EAC CUSTOMS UNION
Has greatly liberalised the EAC region, (average applied tariffs have come down in all Partner States;
Has enhanced predictability for exporters and investors;
Has led to an increase in imports under the 3 tariff bands, especially under the 0%-tariff band. Imports under the 0-tariff band were 63.6% (Kenya), 67.9% (Uganda), and 57.3% (Tanzania)
Affected trade regimes in the three countries:
Increased tariffs for Uganda and Tanzania;
Reduced tariffs for Kenya
Has led to an increase in tariff dispersions (a) from one product to another, (b) across products within sectors, and (c) across stages of production.
Ideally, under a fully fledged Customs Union, member states should not apply rules of origin as goods manufactured in one member state are supposed to move freely. Also goods imported into Customs Union from the rest of the world are supposed to circulate freely.
However, this will not be the case for EAC since modalities for collection and accounting for customs revenue are not in place yet.
Sphagetti bowl complexity poses difficulties in the removal of the application of Rules of Origin.
Therefore, in order to avoid trade deflection as well as promote industrialisation in the Customs Union, EAC will continue applying EAC Rules of Origin. The goods qualifying for EAC Rules of Origin are the only ones which will qualify for community preferential tariff treatment i.e zero import duty.
The value of goods which qualified for exemptions and remissions has been growing (especially for Kenya and Tanzania);
Revenue foregone has also increased;
There are a number of implementation challenges regarding the exemption regime:
Exemptions not categorised and harmonised with other investment incentives provided by different agencies;
Lack of an appropriate monitoring mechanism
NTBs remain a serious concern (continue to raise the cost of doing business, and to impact negatively on trade cooperation);
Most common NTBS include (customs and admin. procedures, inspection requirements, police roadblocks, varying, cumbersome and costly transiting procedures, etc);
Mechanism for elimination of NTBs largely deemed as work in progress.
Unrecorded/ informal cross-border trade;
Dispute settlement mechanism;
Disparate internal taxes such as excise & VAT [VAT- Kenya 16%; Uganda 18%; Tz 18% (was 20% before June 2009)]
There has been a general increase of trade for all the three countries;
Kenya – benefiting most from the regional market;
Trade between Uganda and Tanzania still very low;
Uganda and Tz – mostly agricultural commodities
Kenya – industrial goods;
There has been an increase in revenue despite initial fears. Main factors for this were:
Improvements in economic performance (at least until global financial crisis);
Improvement in tax administration (e.g. simplification of tax laws and regulations, improvement in staff competencies, etc);
Growth in trading activities;
Greater reliance on other taxes (income tax, VAT, etc) other than trade taxes (import duties).
Progress made in harmonising investment policies, incentives and laws;
There are variations in minimum capital threshold requirements.
Cross-border investments still low, with most of them coming from Kenya into the other EAC Partner States.
IDEAL CUSTOMS UNION
Removal of internal tariffs
Free circulation of goods
Common External Tariff- Currently under review
Joint collection of Customs duties
Removal of internal Customs borders
EAC not yet there but moving on towards the ideal CU
FOR YOUR KIND ATTENTION!