With Rwanda joining the East African Community (EAC), businesses hurt by high transport costs caused by the country being landlocked may change.
In calculating taxes and duties on imports by air, the Rwanda Revenue Authority (RRA) has been using Cost Insurance and Fright (CIF), but with the EAC Customs Union, duties and taxes will be applied on cost and insurance only.
“This means under the EAC Customs union laws, while calculating taxes on imports by air, transport costs are not considered,” said Mary Baine, the commissioner general of the Rwanda Revenue Authority. “So when Rwanda starts implementing the EAC Customs Union, tax rates in force will be applied on Cost and Insurance only instead of the familiar CIF.”
Taxes and duties have always held back the flow of trade between the East African countries. With the harmonization of transport, current volumes in the region will improve.
Baine said air transportation will not be taxed according to an act that was passed in the customs union.
“The borders are no longer at Katuna or Kagitumba, they are now at ports like Dar Es Salaam and Mombasa,” she said. “The transport costs will now be calculated from where the goods were bought to the point of entry of the EAC.”
Due to the fact that Rwanda is a land locked country, its imports experience high transport costs, and in calculating taxes and duties on imports by road, the RRA has been applying CIF Kigali. When Rwanda starts to implement the EAC Customs union, evaluating duties and taxes will be based on the CIF port of first entry (Mombasa and Dar es salaam) instead of CIF Kigali.
To the region, this means there will be a boost in trade, since the reduction in transport costs will lead to lower prices on the market and increased trade volumes.
Given the little volume of imports by air, there will be an insignificant loss of tariff revenue for the treasury, but this will be covered by the increase in volume of air importation.
The EAC’s bid to create a single East African market involves easing travel restrictions, harmonizing tariffs, increasing co-operation among security forces, improving communications, sharing electrical power and addressing Lake Victoria issues.
Concrete measures toward integration include freely exchangeable currencies (and ultimately a single currency), a common East African passport, a common flag and a double taxation accord. It also aims to abolish all tariffs with the aim of attaining economic and political integration. This will be achieved through the establishment of a Customs Union as the entry point of the Community, a Common Market, a Monetary Union and ultimately, a Political Federation of the East African States. Each member would however, be allowed to extract a maximum 10 per cent surcharge on some products in order to protect indigenous industries, especially in the smaller economies.
The Kenya-Rwanda Business Association will benefit both the two countries and East Africa as a whole.
“Rwanda has a visionary leadership while Kenya has a dynamic economy,” said Kenya’s Ambassador Alex Ketter. “Marriage between the two can be good for the regional economy.
The association of Kenya and Rwanda was timely and both governments will support the marriage now that Rwanda has joined the EAC.”
The CEO of Rwandair, Manzi Kayihura, said the Rwanda Business Association will work hand-in-hand and both are likely to benefit because they need each other.
“This is going to make doing business in the region very easy and less expensive for traders” he said.