EAC Partner States urged to fast-track the harmonization of domestic tax disparities

By Eunice WAWUDA

The East African Business Council (EABC), in collaboration with PwC has urged the governments of EAC Partner States to fast-track the harmonization of domestic tax disparities to make the region an attractive and unified investment destination.

Mr. Kaheru further urged governments to incorporate private sector proposals into the 2025/26 budgets, which are scheduled to commence on 1st July 2025, in a bid to build a cohesive and prosperous regional market.

In his remarks, Mr. Adrian Raphael Njau, Acting Executive Director of EABC, encouraged the private sector to actively engage in national pre-budget consultations to enhance the business environment and ensure that proposed tax measures align with the objectives of EAC regional integration.

The webinar provided insights into proposed tax measures, including updates on the EAC Common External Tariff (CET) and changes in domestic taxes—VAT, income tax, excise duty, and others—for the 2025/26 fiscal year across EAC Partner States: Kenya, Rwanda, Tanzania, and Uganda. These measures were examined in terms of their implications for regional businesses.

Mr. Frank J. Dafa, Manager of Trade in Goods at EABC, presented on the challenges of harmonizing excise duties in line with the 2019 EAC Policy on Harmonization of Domestic Taxes. The policy calls for EAC Partner States to harmonize and coordinate the list of dutiable goods and services, determine optimal rates, define the tax base for excise duties, and adopt a consistent excise tax regime (ad valorem, specific, or hybrid).

The EAC Fiscal Affairs Committee have proposed a minimum excise duty rate of USD 6 per litre of 100% alcohol content across the EAC, which translates to (USD 0.3 per Litre of Beer), (USD. 0.72 per Litre of Wine), and (USD. 2.4 per Litre of Spirits). However, the Partner States have divergent views on the minimum rates for tobacco and other nicotine products, non-alcoholic beverages, and fossil fuels.

Corporate income tax rates are lowest in Rwanda at 28%, compared to 30% in Tanzania, Kenya, and Uganda. Taxes on employers—which include social security, the skills development levy, workers’ compensation, and maternity benefits—stand at 14% in Tanzania, are nominal in Kenya, 10% in Uganda, and 8.3% in Rwanda. Taxes on employees, covering income tax, social security, and maternity benefits, are 40% in Tanzania, 35% in Kenya, 45% in Uganda, and 36.3% in Rwanda. (According to PwC Analysis)

Withholding taxes on dividends and service supplies for non-residents differ from those for locals and range from 10% to 15% across EAC countries, creating a discriminatory environment for EAC service suppliers Unharmonzied domestic tax disparities hinder the optimal allocation of resources and restrict the movement of goods, services, service suppliers, workers, capital, and investment across the region.