Kenya’s tax predicament in light of the EAC-CET plan
Following the withdrawal of its contentious Finance Bill 2024, experts speculate that Kenya may be permitted to remove duties placed on goods by the East African Community.
In accordance with the terms of the EAC Treaty, the nation may request a stay of application, according to John Kalisa, chief executive of the East African Business Council.
The authorized import duty measures in the EAC common external tariff that will impact partner states are listed in the gazette notice dated June 30 and signed by Council of Ministers chair Deng Alor Kuol.
Companies in Kenya are preparing for “unintended consequences” from the harmonized tax of the East African Community (EAC), which finance ministers previously agreed upon.
It can cause business to become distorted. Since it suggests that Kenya will apply a different rate than other partners, it will have an effect on revenues, Mr. Kalisa added.
The region is implementing the four-band CET for the second time this time around.
One of the main tools of the Customs Union is the Common Entry Tariff (CET), which aims to promote regional integration by treating goods imported from other countries equally.
safeguard regional producers
It additionally aims to shield regional producers from rivalry from comparable items imported from outside.
Experts estimate that an import finished goods tariff of 35 percent might increase intra-EAC trade by $18.9 million.
Tax revenues might also rise by 5.5 percent, while the region’s industrial production could rise by 0.04 percent to $12.1 million.
President Ruto stated that the National Treasury was restructuring the budget to take into account the new situation during a Cabinet meeting on Thursday. He made the announcement that his government would be enacting measures to guarantee greater austerity again on Friday.
Significant budget cuts would be one of these in order to “balance between what needs to be implemented and what can wait and ensure that key national programs are not affected.”
However, Kenya may find it difficult to assess the responsibility in accordance with CET criteria, the Kenya Association of Manufacturers said.
“Those are very high level, technical discussions on CET, and it might not be easy for Kenya to be granted application of stay on the items in question,” KAM CEO Anthony Mwangi stated. But before anything else, the Treasury must start the procedure by requesting a corrigendum, which the EAC publishes in a gazette notice. An error in a legal notice’s position is fixed by a corrigendum.
KAM is gathering information from industries impacted by the EAC notification in order to compile a position that will subsequently be sent to the EAC and National Treasury.
Cooking fat and margarine prices would rise for the upcoming year as a result of the notice imposing a 10% import charge on crude palm oil on imports from outside the EAC.
Refined sunflower oil, refined corn oil, RDB palm oil, and refined soybean oil are among the other oils that have higher taxes.
Regarding crude palm oil, Kenya and Uganda decided to impose a 10-percent tariff for a year in addition to maintaining the EAC CET rate of 0%.
Increased taxes on baby diapers are also planned, with Kenya and the other EAC members choosing to impose a duty rate of 35%, as opposed to the previous 25% under the CET regulations.
From 25 percent last year, television sets will now impose a 35 percent tax rate.
Kenya has decided to apply a tariff rate of 25 percent this fiscal year instead of the EAC CET rate of 0 percent on mobile phones.
However, duty-free imports of raw materials and inputs for the production of clothing and other textiles are authorized for Burundi, Rwanda, Tanzania, and Uganda.
Tanzania has submitted an application to suspend the 10 percent EAC CET rate and impose a 25 percent duty rate on polyester/nylon twine for a period of one year in order to safeguard its textile sector.
Kenya submitted a request to extend the EAC CET rate of 75% or $345/MT, whichever is higher, and to impose a duty rate of 35% or $200/MT, whichever is higher, on rice for a period of one year.
Kenya will continue to apply the EAC CET rate for iron and steel reinforcing bars and hollow profiles, but will impose a duty rate of 35 percent or $300 per MT, whichever is higher.
The region is implementing the four-band CET for the second time this time around.
According to John Kalisa, CEO of the East African Business Council, a stay of application could be requested in accordance with the EAC Treaty’s terms.
The controversial Finance Bill, 2024, which was shelved by President William Ruto a week earlier, might potentially reverse some of the gains gained from the bill’s withdrawal when the EAC levies under the common external tariff (CET) went into effect.
