Overview on Tax Harmonization in EAC

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Overview on Tax Harmonization in EAC

• Kenneth BagamuhundaDirector Customs, East
  African Community
• 28th May 2009

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Background

• Tax harmonization is constituent element of the
  integration process of EAC
• Customs union
• Common market
• Monetary union
• Political federation
• Viewed in the context of Fiscal policy
  harmonization
• Based on the principle whereby treatment to each
  other is not less favourable than treatment
  accorded to third parties
• Mutually beneficial to al Partner States
• Neutrality non interference with free trade,
  free competition and investment flows
• Tax harmonization is a process that leads to a
  desired end state

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• Is a means to attainment of the objectives of the
  Community under Article 5
• Sustainable growth and development through
  promotion of balanced and harmonious development
• Equitable economic development that in turn
  raises standards of living
• Equity, cohesion and convergence

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Tax harmonization under the EAC Treaty

• Article 75 Customs union
• Article 75 on Common Market
• Article 80 1 (f) harmonise and rationalise
  investment incentives relating to taxation of
  industries
• Article 83 2 (e) of EAC Treaty, PS shall
  harmonise their tax policies
• Article 84 harmonise policies impacting on
  capital markets particularly granting of
  incentives for the development of capital markets
• Article 86 on free movement of capital by removal
  of controls

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Tax harmonization under the Customs Union

• Establishment of CET
• elimination of internal customs tariff
• Removal of charges of equivalent effect
• National treatment under the CU Protocol
  discriminatory treatment
• Objectives
• Intra trade liberisation
• Production efficiency
• Enhance investment
• Economic development through industrial
  diversification

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Tax harmonization Under the Common market

• Article 37 of the draft protocol operationalises
  Article 83 2 (e) of EAC Treaty, PS shall
  harmonise their tax policies to remove
  distortions
• Essential for the realisation of the Common
  Market in order to achieve the objectives and
  principles laid out in the draft protocol (the
  Treaty)

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Tax harmonization programme

• Draw lessons from the defunct EAC where
• Common income tax code
• Common customs code
• Common excise duty code
• Similar sales tax code
• Institutional framework for management of taxes
  in the region
• Started in 1997 with the development of an
  Agreement on Avoidance of Double Taxation under
  the permanent Tripartite Commission
• CU protocol and its implementation

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Tax harmonization programme

• Development and adoption of an EAC model
  investment Code
• EAC Private Sector development Strategy
• Initiatives to harmonise indirect taxes and
  incentives
• a code of conduct to avoid harmful tax
  competition, and
• Study on Investment tax incentives and
  harmonization in 2003
• Export promotion incentives under the Customs
  Union Protocol
• Pre -budget consultation meetings by the
  Ministers of Finance
• Development of an EAC Development Fund

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Tax harmonization programme

• Council decisions on Financial and monetary
  matters in regard to
• Capital market development Committee
  recommendations on harmonization of taxes on
  capital
• Withholding taxes on dividends, corporation taxes
  on listed companies, taxes on interest on long
  term bonds, taxes on investment income under the
  pension sector
• Monetary Affairs Committee recommendations on
  harmonization on tax related aspects in the
  monetary field
• Fiscal affairs committee work on DTA
• Customs Committee
• Similar tax regimes of Partner States such as
  VAT, Excise Duties and Income Taxes

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The tax harmonization project

• Identify areas of convergence and divergence in
  the tax systems and laws
• Propose and develop tax harmonization framework
• Promote exchange of information on domestic
  taxation
• Institutional framework on Tax matters at
  regional level
• Provide IT support such as common databases
• Support and develop common training framework on
  domestic taxation
• Synergy to the the CU process in relation to
  taxation of imports

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tax harmonization project

• Developed Conceptual frame work
• Commissioned a study of the tax systems
• Developed a work plan
• Workshops
• Study tour to EU

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Target groups and Stakeholders
Ministry of Finance, RA
EAC Tax Harmonisation Programme
Private Sector bodies
External Support
Best Solutions for EAC
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Conclusion

• Clarify scope of tax harmonization in the EAC
  Context/ approximation
• Propose a viable mechanism for Tax harmonization
  within the ongoing integration process
• How subsidiarity and asymmetry can apply in tax
  harmonization process
• Lessons from other RECs particularly the EU

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• Thank You