An East African Customs Union?

By Omolo, Leo Odera | African Business, October 1998 | Go to article overview
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An East African Customs Union?


Omolo, Leo Odera, African Business


Major Western donors are reportedly pushing for the establishment of a customs union for the East African region, which would make it possible for Ugandan importers to pay their taxes at the Kenyan port of Mombasa. The commissioner in charge of tax policy at Uganda's Ministry of Finance, Planning and Economic Development, Mr Patrick Ocailap, said that The World Bank had approved a study for the establishment of such a union, with a structure similar to that of the South African Customs Union (SACU).

The commissioner said that the concept of Ugandan importers paying their taxes at the Kenyan port had been under discussion since April last year, but that its implementation would not be possible before certain issues, such as the convertibility of the Kenyan shilling, were sorted out.

He asked: "For example, Uganda operates a cash budget and if Kenya collects the taxes and remits the money at a loss because of differences in exchange rates, who will bear the loss? And in case of a disagreement, who does the arbitration?" The commissioner also said that collecting taxes at Mombasa would go a long way towards curbing smuggling and the diversion of transit goods. He refused however to speculate on exactly when the new system is likely to be in place.

Items such as oil, fuel and cigarettes are most pone to smuggling. Industry estimates put the government's annual revenue losses through cigarette smuggling at between Ushs9bn ($7.5m) and Ushs12bn ($10m). Lower tax rates in both Kenya and Tanzania have led to increased cigarette smuggling, as smugglers are able to sell their products in Uganda at half the price. Over 50% of the retail price of every cigarette is paid to the government in taxes.

The smuggling of uncustomed goods has been a regional problem for years. Since the setting up of the East African Cooperation in 1966 revenue authorities from the three countries have been looking into ways and means of tackling the problem jointly. Most recently, a series of joint meetings have been held in the last year or so to exchange information on the harmonisation of taxes and tariffs and the collection of import duties.

Uganda

Being a landlocked country and depending heavily on the Mombasa port for imports and exports, Uganda experiences the highest levels of smuggling in the region. Observers say smuggling intensified when the Uganda Anti-Smuggling Unit was disbanded in mid-1996.

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