Kenya and Uganda scream loudly as the reality of additional tariffs checks in

Only a week after the new East African Community common external tariff (CET) band went into effect, companies are already feeling the squeeze and complaining about the regime’s “unintended effects.”

Kenya and Uganda have lodged objections with the East African Business Council (EABC), the regional lobby, about a bill that increased import levies on products from non-EAC nations to 35%. According to reports, several basic goods beyond the band have also been impacted.

In May, the bloc’s Trade and Finance Ministers agreed on a maximum rate of 35% for items categorized under the 4th Band of the EAC single external tariff.

The CET, one of the Customs Union’s primary mechanisms, is intended to promote regional integration via consistent handling of products imported from third parties. It also aims to shield local firms from competition from comparable items imported from outside the area.

A 35% tariff on imported completed items, according to experts, has the potential to increase intra-EAC commerce by $18.9 million. Furthermore, the region’s industrial output will rise by 0.04 percent to $12.1 million, while tax revenues will rise by 5.5 percent.

It also has the potential to generate 6,781 new employment.

The new band went into effect on July 1, but customers seem to have been unprepared for the price increase. Dairy and meat products, cotton and textiles, iron and steel, edible oils, soaps and drinks, and alcohol imported from beyond the EAC are all part of the band.

Furniture, leather items, fresh-cut flowers, fruits and nuts, sugar and confectionary, coffee, tea, spices, textiles and garments, headgear, ceramic objects, and paints are among the other commodities covered.

However, Kenya and Uganda now claim that the additional levy has increased the cost of importing, causing basic items to become more expensive.

In the last week, the EABC has received letters from organizations expressing concerns about the implementation of the unified external tariff.

“Kenya is interested in timber goods, while Uganda is concerned with industrial sugar.” “We will handle the allegations after considerations,” stated EABC CEO John Bosco Kalisa.

After the government stopped logging, Kenya began importing wood from EAC partner countries, particularly the Democratic Republic of the Congo. With the new CET band, imported timber now sells for the same price as completed furniture on the market.

PG Bison Kenya Ltd, a Kenyan furniture maker, claims that an increase in import tax on raw materials used to make furniture has compelled them to raise product pricing.

“Our rates will change starting Friday, July 8, 2022, as a result of these regulatory changes, as well as recent increases in fuel-related logistics and a fast declining local currency.” In a note to clients, the firm said, “A new pricing list will be published and disseminated appropriately.”

Import duties on raw materials such as particleboard, plywood, and blockboard have increased from 25% to 35%.

“The tariff gap that existed to incentivize raw material value addition has been erased,” said Amit Maru, the firm’s operations manager.

“We would like to draw your attention to the fact that our pricing must be revised higher with immediate effect due to increasing import duties on raw materials.” The tariff rate on raw materials is now the same as the rate on completed furniture. The tariff calculation also allows for a rate per metric tonne or cubic meter to be used, which may result in a tax due sum that exceeds the 35 percent value calculation,” he noted.

Uganda is likewise having difficulty selling excess industrial sugar within the area, while Rwanda and Burundi are running out.

Even if Rwanda and Burundi imported industrial sugar from Uganda, they would not be able to meet their demand since they are net importers. The difficulty arises in distinguishing between sugar from the area and sugar from elsewhere.

“The two nations must maintain their stay of application for sugar imports,” Kalisa added.

He did, however, say that there is no need for concern since “it is yet too early to know the entire effect of the new import duties.”

“The problem is not the existing CET; it is the categorization and other new rates that are coming that need clarification since anything might be incorrectly attributed on the CET.” “The CET is unequivocal: there is no new value in raising the pricing of items accessible in the area,” Kalisa said.

The 35% CET target items that are accessible in the area and are produced in large quantities, such as cereals, potatoes, vegetables, maize, and beans.

While the maximum tariff band of 35% was determined to be the most acceptable rate, it was highlighted that in its implementation, a welfare loss would be anticipated but would be offset by the employment created by the shift to local manufacturing.

However, growing living costs as a result of global events such as Russia’s invasion of Ukraine, higher petroleum prices, Covid-19, inflation, and currency shortages have impacted CET implementation.

The new tax policies were adopted by EAC states in the Finance Act 2022, which went into effect on July 1.

The Kenya Association of Manufacturers (KAM) has identified the Act as one of the key reasons of the country’s high living costs.

“Some of the tax changes in the Finance Act 2022 are likely to affect the manufacturing sector,” said Mucai Kunyiha, chairman of KAM. “This is unlikely to stimulate development in agriculture and industry.”

Regional tax variation might be the next roadblock to decreasing food costs.

Kenya eliminated import duties on maize last week. The measure, intended to increase supply to millers and so cut the cost of maize flour, may have a minimal effect since differences in commodity tariffs levied by EAC nations and additional import duties combine to boost the cost of food.

Kenya’s primary sources of maize imports are Tanzania, Uganda, and Zambia to the south.

Nairobi has even gone so far as to import maize from Mexico to address shortages.

Shipments from non-member nations of the EAC or the Common Market for Eastern and Southern Africa (Comesa) are often subject to a 50% duty.

However, Kenya abolished import tariffs on white non-genetically modified maize of up to 540,000 tonnes till the end of September since millers fear a severe grain scarcity, although no maize-carrying vessel is planned to land at the Port of Mombasa any time soon.

According to a Kenya Ports Authority ship timetable obtained by The EastAfrican, no maize-carrying cargo is planned to land at the port before July 14.

According to the timetable, Mombasa will handle mostly conventional cargo beginning July 4, with 16 boats slated to stop at the port. Five of them are oil tankers.

Major mills have had to stagger their operations, while tiny ones have had to shut entirely.

Nairobi is now appealing to Zambia, Tanzania, and Uganda to cease exporting maize at its cost to other nations.

Agriculture Cabinet Secretary Peter Munya says the nation has begun negotiations with the three countries to provide Kenya a part of maize exports to compensate for supply shortages.

“We are currently talking to these nations about setting aside certain supplies of maize to be acquired by our merchants to increase local supply,” Mr. Munya added.

Zambia has begun harvesting its major crop, while Tanzania and Uganda have surpluses that Kenya wants to purchase.

Kipngetich Mutai, chair of the Grain Belt Millers Association (GBMA), a lobbying group, said Kenya’s decision to suspend import duties on maize will not result in lower prices because there are bottlenecks in the commodity’s importation, such as the increased cost of export permits from the main market source, Tanzania.

Millers’ affiliations Cereal Millers Association, Association of Kenya Feed Manufacturers, Eastern Africa Grain Council, and GBMA are now seeking EAC tax regimes and policies to be harmonized to encourage trade.

“It is vital for EAC nations to assist logistics for maize imports from other countries in order to reduce flour costs.” “The cost of ferrying maize from Tanzania to Kenya has risen due to disparities in tax rules between the two nations,” they stated in a statement.

In a webinar last week on local tax regimes and planned steps for the partner states’ budgets in 2022/23, EABC pushed for harmonized taxes in the area to enhance intra-EAC commerce.

According to the CEO of the organization, the EAC Treaty requires partner nations to “harmonize their tax systems in order to reduce inefficiencies and achieve a more effective allocation of resources within the bloc.”

With CET harmonization, all member countries are expected to pay a 35 percent tax on items created outside of the area that can be produced locally. It implies that nations with lower tariffs have had to increase them, contributing to the rise in the price of items such as petrol, which directly impacts food prices as carriers pay more to carry commodities such as maize.

Kenya has typically limited purchases to protect local maize producers, but at the expense of consumers, who must pay a higher price for the commodity.

Kenya is depending heavily on maize stockpiles from Tanzania to fulfill increased flour demand after the supply in the domestic market ran out. Because of the higher pricing in South Sudan, most Ugandan equities are sold there.

According to importers, a bag of maize that was $40 is now $61, raising the price of maize flour from $1.42 to $2.5 for a two-kilo package.

Farmers in western Kenya are expecting to harvest their yearly maize crop in July and early August, but this will just be enough to maintain the area.

In September, Narok in the South Rift will have maize before the large harvest in the North Rift in mid-October. Until then, Kenya will depend on imports, and it seems that imports from neighbors may be influenced by levies.

The country’s maize output is predicted to be 3.2 million tonnes per year, versus a need of 3.8 million tonnes, with imports from the area covering the imbalance.

After a severe drought struck agriculturally productive regions for a long time last year, maize output fell by 12.8 percent from 42.1 million bags in 2020 to 36.7 million bags in 2021.

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