Just a week after the East African Community’s new Common External Tariff (CET) range went into effect, businesses are already feeling the pinch and shouting about the regime’s “unintended consequences”.
Kenya and Uganda have joined the East African Business Council (EABC), the regional lobby, filed complaints about the law that raised import taxes on goods from non-EAC countries to 35 percent. They say some basic out-of-range items are also affected.
The bloc’s trade and finance ministers in May set a maximum rate of 35 percent for products falling under Band 4 of the EAC’s common external tariff .
The CET, one of the key instruments of the customs union, is intended to promote regional integration through uniform treatment of goods imported from third countries. It also seeks to protect local manufacturers from competition from similar goods imported from outside the region.
A 35 percent tariff on imported finished goods has the potential to increase trade within the EAC by 18 $.9 million to increase. In addition, the region’s industrial production will increase by 0.04 percent to $12.1 million and tax revenue by 5.5 percent.
It also has the potential to create an additional 6,781 jobs.< /p>
The new price range went into effect on July 1st, but consumers do not appear to have been prepared for the price increase. The band offers dairy and meat products, cotton and textiles, iron and steel, cooking oils, soaps and beverages and spirits imported from outside the EAC.
Read:East African States rush to impose new taxes on imported goods
Other covered goods include furniture, leather products, fresh-cut flowers, fruits and nuts, sugar and confectionery, coffee, tea and spices, textiles and clothing, headgear, ceramic products and paints .
But Kenya and Uganda are now saying the new tax has pushed up import costs and impacted staple foods.
The EABC has received letters over the past week from Organizations raising concerns about the implementation of the common external tariff.
“Kenya raises concerns about timber products, while Uganda worries about industrial sugar. We will deal with the complaints after consultation,” said John Bosco Kalisa, Chief Executive of EABC.
Kenya imports timber from EAC partner countries, including the Democratic Republic of the Congo, after the government banned logging. Now, with the new CET band, imported timber fetches the same price as finished furniture already on the market.
Kenyan furniture manufacturer PG Bison Kenya Ltd explains the increase in import duties on raw materials used for Products used in the manufacture of furniture has forced it to increase product prices.
“Due to these policy decisions and combined with the recent increase in fuel-related logistics and a rapidly depreciating national currency, our prices will increase from Friday, July, change August 2022. A revised price list will be issued and distributed accordingly,” the company informed its customers in a statement.
Raw materials such as chipboard, plywood and blockboard Now import tariff is 35% instead of 25%.
“The tariff differentials that existed as an incentive to add value to raw materials have been eliminated,” said Amit Maru, d he operations manager of the company.
“We would like to draw your attention to the fact that our prices need to be reviewed upwards with immediate effect in relation to increased import tariffs on raw materials. The resource tax is now the same as the rate applied to a finished piece of furniture. The tariff calculation also allows for the application of a tax rate per tonne or cubic metre, which can correspond to an amount of tax payable that can exceed the 35 percent ad valorem calculation,” he added.
em> learned that Uganda also faces challenges when it comes to exporting surplus industrial sugar within the region, while Rwanda and Burundi face shortages.
But even if Rwanda and Burundi export industrial sugar from Uganda would import, they would not meet their demand as they are net importers. The problem is distinguishing local sugar from non-local sugar.
Read:Why alcohol, meat cost more in EAC countries
“The two countries must uphold their request to suspend sugar imports,” Kalisa said.
However, he noted that there should be no cause for concern, “as it is too early to see the full impact.” to estimate the new import taxes.”
“The problem is not the current CET; The problem is the classification and other new tariffs that are emerging and need clarification as everything could be wrongly charged to CET. CET is very clear: there is no new sense in raising prices for goods that are available in the region,” Kalisa said.
The 35 percent CET targets goods that are available in the region are available and produced in significant quantities, including grains, potatoes, vegetables, corn and beans.
Although the maximum tariff of 35 percent is the most appropriate rate, it was pointed out that there would be a deadweight loss if applied would be expected but would be cured by the jobs created by the shift to local production.
The rising cost of living due to global events such as the Russian invasion of Ukraine, higher crude oil prices, Covid-19, inflation and dollar shortages have implementation of the CET.
EAC countries domesticated the new tax measures in the Finance Act 2022, which came into force on July 1.
The Kenya Association of Manufacturers (KAM ) did Law as one of the main
“Some of the tax measures in the Finance Act 2022 will have an impact on the manufacturing sector,” said Mucai Kunyiha, KAM chairman. “This is unlikely to spur growth in agriculture and manufacturing.”
Regional tax differentials could be the new stumbling block to cutting food costs.
Waited last week Kenya insists import duties on corn. However, the move, which is expected to improve supplies for millers and thereby reduce the cost of cornmeal, is unlikely to have much impact as the different taxes levied on raw materials by EAC states and new import taxes combine to further increase food costs.< /p>
Kenya’s main sources of maize imports are neighboring Tanzania and Uganda, and Zambia further south.
In the past, Nairobi has gone so far as to import maize from Mexico to alleviate shortages.
Shipments from countries that are not members of the EAC or the Common Market for East and Southern Africa (Comesa) are generally subject to a 50 percent duty. However, Kenya waived import fees for white non-GMO maize of up to 540,000 tons until the end of September as millers are facing an acute grain shortage but soon no ship carrying maize is to dock at Mombasa port.
< p>A Kenyan Ports Authority ship timetable, viewed by The EastAfrican, shows that no ship carrying corn is expected to dock in port before July 14.
The timetable shows that Mombasa will mainly handle conventional cargo from July 4th will dispatch. 16 ships are expected to call at the port. Five are oil tankers.
Large millers had to relocate their operations, while small ones were shut down entirely.
Maize imports affected
Now Nairobi is pleading with Zambia, Tanzania and Uganda to stop exporting corn to other countries at its own expense.
Agriculture Cabinet Secretary Peter Munya says the country has started talks with the three countries to guarantee Kenya a share of corn exports to help make up deficit deliveries .
“We are now talking to these countries to reserve some stocks of corn to be bought by our traders to increase local supplies,” said Mr. Munya.
Zambia has started harvesting its main crop, while Tanzania and Uganda have surpluses that Kenya is trying to import.
Kipngetich Mutai, chairman of the Grain Belt Millers Association (GBMA), a lobbyist, said Kenya’s move to reduce the charges expose on imported corn is not going to result in lower prices due to bottlenecks in importing the goods, e.g. B. the increases ed export license costs from the main market source Tanzania.
Millers associations Cereal Millers Association, Association of Kenya Feed Manufacturers Eastern Africa Grain Council and GBMA are now pushing for harmonization of EAC tax rules and guidelines for relief of trade .
“It is crucial for the EAC countries to support the logistics of importing corn from different countries in order to reduce the cost of flour. The cost of shipping corn from Tanzania to Kenya has become high as countries apply different tax laws,” they said in a statement.
Last week in a webinar on domestic tax systems and proposed actions for 2022/ 23 budgets for partner countries, the EABC also urged harmonized taxes in the region to improve trade within the EAC.
The lobby’s CEO said the EAC treaty obliges partner countries to “agree on their tax policies harmonize to eliminate distortions and bring about a more efficient allocation of resources within the bloc.”
With the harmonization of continuing education, all member states are to levy a 35 percent levy on goods manufactured outside the region that can be produced locally. This means that countries that had a lower tariff had to increase it, which contributed to a rise in the price of goods like fuel, which directly impacts the cost of groceries as transport companies pay more to move goods like corn.
Kenya has traditionally restricted purchases to cushion local corn farmers, but at the expense of consumers who are forced to pay higher costs for the grain.
Kenya relies mainly on corn stocks from Tanzania to meet rising demand for flour after supply in the local market has dwindled. Most supplies from Uganda are sold in South Sudan because of higher prices there.
According to importers, a bag of corn that retailed for $40 is now selling for $61, the price for Cornmeal goes from $1.42 up to $2.5 for a two-kilo package.
In July and early August, farmers in western Kenya are supposed to harvest their annual corn crop, but they can’t Support region only.
Narok in the South Rift Corn in September ahead of the big harvest in the North Rift in mid-October. Until then, Kenya will depend on imports, and it looks like imports from its neighbors could be hit by taxes.
The country’s maize production is estimated at 3.2 million tonnes per year, with a demand of 3.8 million tons million tons, with the deficit being covered by imports from the region.
Production of corn, a staple crop, rose 12.8 percent from 42.1 million bags in 2020 36.7 million bags in 2021 after a prolonged drought ravaged agriculturally productive regions for an extended period last year.