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The East African : Aug 29th 2015
4 DISPUTE Exit Kenya’s sugar, enter Tanzania rice: Kampala’s new trade war Uganda’s VAT Act applies in this case, acco≥ding to a tax policy o∞ce≥ By JULIUS BARIGABA The EastAfrican E ven as recent trade wars in the East African Com- munity have mostly featured Kenya and Uganda over sugar exports, Kampala has for the past two months been locked in a dispute with Tanzania over an 18 per cent value added tax on the latter’s rice. The EastAfrican has learnt that tens of thousands of tonnes of rice grown and produced in Tanzania are either lying at Mutukula and Port Bell or in other border towns on the Tanzanian side. Uganda says it is invoking its internal law as opposed to the EAC laws. Article 15 (1) and (2) of the EAC Customs Union Protocol prevents discrimination and imposition of internal tax on products of partner states. The five EAC partner states have not yet harmonised domestic tax laws and as such, Uganda’s VAT Act applies in this case, according to Moses Egwapu, a tax policy officer at the Ministry of Finance. “Why should rice from Tan- zania not pay VAT? The VAT Act states that rice from outside Uganda attracts VAT... VAT is a domestic tax,” Mr Egwapu told The EastAfrican. Mr Egwapu added that the VAT Act applies to all rice imports so as to protect the local industry and give incentive to Ugandan millers to add value to their rice. This, however, plays into the same nationalistic and protectionist motives that Kenya was using to block Ugandan sugar millers from exporting their excess sugar to Kenya to which Kampala responded by blocking beef imports from Kenya, until Presidents Yoweri Museveni and Uhuru Kenyatta agreed to end the long running trade war. But the rice lobby in Ugan- da, which boasts 120 dealers who buy both locally as well as import from the EAC and elsewhere, is citing the EAC Customs Union Protocol and the EAC Customs Management Act as it heads to the courts to interpret the laws and arbi- What do you think will happen if government allows imports to flood the market?” Phillip Idro, rice farmer and miller The EastAfrican NEWS AUGUST 29 - SEPTEMBER 4, 2015 Nai≥obi p≥otests Da≥ demand on tobacco By ADAM IHUCHA Special Correspondent KENYA HAS protested Tanzania’s move to impose a higher local content requirement for tobacco exports. At the just ended 32nd East Af- rican Council of Ministers meeting in Arusha, Kenya complained that Tanzania demands that 75 per cent of the inputs into tobacco exports must be from the exporting state, contrary to the EAC Treaty. According to Article 75(6) of the EAC Treaty and Article 15 of the Customs Union Protocol, partner states should give preferential treatment to products from EAC countries. The EAC Secretariat interpret- ed local to mean all goods originating from EAC partner states — in this case, tobacco from Kenya exported to Tanzania — hence tradable under the community tariff treatment within the EAC. The former EA rules of origin According to a Ugandan official, the VAT Act applies on all rice imports so as to protect the local industry. Picture: File trate in this dispute. “We are waiting for them to write to us formally about their stand and we shall then take them head on. “We are going to fight this legally and morally. If this is not solved in the next few days, we will campaign the Protocol, highlighting the discrimination against rice in favour of sugar,” said Issa Sekitto, spokesman of the Kampala City Traders Association, the business lobby to which the rice importers belong. But other players in Ugan- da’s rice sub-sector have a different take: That with the country about to go into elections, the imposition of this tax could be political. Political angle “Rice farmers in Uganda have become politically alert. They know when to push for protection from imports. This is election time in Uganda. What do you think will happen if the government allows imports to flood the market? It has political consequences,” said Phillip Idro, a rice farmer and miller, and former Ugandan ambassador to China. The Rice Council of Tanza- nia says its farmers have invested heavily in commercial rice farming and milling, resulting in improved produc- CUSTOMS PROTOCOL VS UGANDAN VAT LAW A Ugandan official said the country’s VAT Act applies to all rice imports so as to protect the local industry and give incentives to Ugandan millers to add value to their rice But Article 15 (1) and (2) of the EAC Customs Union Protocol prevents discrimination and imposition of internal tax on products of partner states. “The partner states shall not: (a) enact legislation or apply administrative measures which tion at 1.3 million metric tonnes per year — against an annual demand of less than a million onnes. Trade rows between partner states testing the EAC instruments and commitment to the integration process are not new. In 2011, Dar slapped a 25 per cent tariff on Ugandan manufactured cosmetics, citing continued unfairness over the infamous “Uganda list of tax exempt raw materials.” At the start of the Customs Union Protocol in 2005, the EAC granted Uganda a five-year adjustment window to import 135 finished and intermediate products as raw materials, hence zero rated, while these attracted the common external tariff for directly or indirectly discriminate against the same or like products of other partner states; or (b) impose on each other’s products any internal taxation of such a nature as to afford indirect protection to other products. “No partner state shall impose directly or indirectly, on the products of other partner states any internal taxation of any kind in excess of that imposed directly or indirectly, on similar domestic products.” Kenya and Tanzania. This allegedly gave Ugandan manufacturers unfair advantage as products from these “raw materials” that were otherwise finished or intermediate for Tanzania and Kenya made similar products from these countries uncompetitive. After the end of this adjust- ment window in 2010, Uganda applied for a further three years on a rolling one-year basis for companies that had not matured to start importing non-duty exempt inputs. Ugandan cosmetics firm Sa- mona Products is one of the companies that briefly suffered this measure, but was given access to the Tanzanian market after the products were tested by compliance bureaus. required only 35 per cent of local inputs for goods to qualify as originating from a member state for them to be duty-free. British American Tobacco has maintained that the 75 per cent local content required by Tanzania Revenue Authority does not conform to the EAC rules of origins. In the revised rules, the value threshold has been lowered from 35 per cent to 30 per cent on local imports, and will be calculated by using the ex-works price instead of the exfactory, making the products more affordable. Ex-works price includes distribution costs like transport and logistics to the shop yard while the ex-factory price looks at the value added on the factory floor only. The EAC Council of Ministers directed Tanzania to update Kenya on the removal of the 75 per cent requirement on tobacco products exported from Nairobi to Dar at the next Council meeting. Acting executive director of East African Business Council Lilian Awinja said that with the EAst African Community Common Market, harmonising tax regimes in the five partner states is crucial. Ms Awinja said that disparities in domestic taxes have contributed to high tax administration and compliance costs, harmful tax competition, as well as smuggling of highly taxed excisable goods. “This has led uncompetitive- ness and low consumer welfare,” she said and called for a policy on products manufactured using raw materials from EAC region.
Aug 22nd 2015
Sep 5th 2015