The East African Community (EAC) is this week expected to move closer to harmonising taxation among member states following an earlier agreement to remove double charges for businesses that operate in two or more countries. (RELATED: Tax incentive for Kenyan firms with Uganda branches)

The East African Business Council (EABC) in conjunction with EAC will hold a three-day conference on tax harmonisation in Arusha beginning tomorrow, to chart a common taxation policy for the trading bloc.
Tax harmonisation is seen as the key to realisation of a common market.

It aims to address two key issues that have been holding it back, and by extension the regional integration effort.
It would eliminate tax competition among EAC states, and reduce the risk of revenue erosion that comes with the lowering of taxes by national governments to attract Foreign Direct Investment.

According to the EABC executive director, Ms Agatha Nderitu, the conference would create the basis for EAC states to agree on a baseline level of taxes across the board with a good balance between promoting economic development and growth, making each country competitive in terms of their ability to attract investors.

“Private sector would easily tap the opportunities offered by EAC Common Protocol especially its four freedom, which are free movement of goods, labour, capital, and services as well as rights of establishment and residence,” she said.

The five member countries had agreed to eliminate double taxation in cross border transactions in December last year, but member countries are yet to gazette the agreement.

According to the Ministry of East African Community PS, Mr David Nalo, there seems to be a general misunderstanding about tax harmonisation and the Arusha conference would deepen the understanding of what has been achieved and how to move forward.
“Taxes on imports and exports need harmonisation, but there are other domestic ones like VAT (value added tax) that might not necessarily need harmonisation even though we would ideally like to see harmony,” he said. “It all depends on the ability of the individual countries to finance their budgets.” (RELATED: EAC moves to grow trade with export rules review)

Double taxation has been blacklisted as the most notorious stumbling block threatening trade and economic integration among EAC member states.
The Arusha conference brings together heads of East African tax administration, policy makers, heads of private sector federations, EABC members, and tax consultants to discuss progress made, challenges faced and possible new direction for EAC tax policy and administration suitable for the common Market.

Ms Nderitu said that there are numerous benefits for both government and private sector with regard to harmonisation of domestic taxes.
She said that the main one is the elimination of tax distortions so as to bring about a more efficient allocation of resources in the common market and enhance trade. This, she said, would prevent cross-border smuggling of goods encouraged by high difference of taxes — especially prevalent for goods subject to excise tax like alcohol and cigarettes.

Other benefits include the enhanced free movement of goods in the common market, the elimination of harmful tax competition among partner states in attracting investments and the reduced tax administration and compliance costs in the region.

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