To enhance tax compliance, Finance Ministers from the East African Community (EAC) have adopted a 5 percent fixed rate for withholding tax on dividends.
The ministers also endorsed a 10 percent withholding tax on interest, royalties, and management and professional fees under the draft agreement on “Avoidance of Double Taxation (DTA).”
This was during the EAC post –budget consultations meeting of Finance Ministers from the community held in Arusha, Tanzania on Thursday.
The new policy is a relief to investors whose returns as dividends in Rwanda currently attract a witholding tax rate of 15 percent. However, this is exceptional to payments governed by article 45 of the tax law.
Performance payments made to an artist, a musician or an athlete irrespective of whether paid directly or through an entity that is not resident in Rwanda, and lottery and other gambling proceeds also attract 15 percent of withholding tax.
The ministers also agreed that partner states should not negotiate with third parties rates lower than those in the EAC DTA.
However the existing rates of the DTAs that partner states have with other countries will be maintained until they expire though their renewal will be done in accordance with the new positions agreed.
“The Ministers directed Secretariat to take stock of all existing DTAs concluded by Partner States with Third Parties and create a database; and to fast track the development of a model DTA as earlier directed by the Council,” a press statement from the EAC Secretariat reads in part.
To enforce elimination of Non-Tariff Barriers, the ministers directed the Secretariat to convene a joint meeting of the sectoral committee on trade and the fiscal affairs committee to deliberate on practical interventions.
The committee will also deliberate on mechanisms and enforcement measures as the EAC commences implementation of the fully fledged Customs Union.
The ministers also granted the request by Kenya for extension of reduction of duty on malt to apply an import duty rate of 0percent instead of 10 percent. It was also allowed to apply duty rate of 10 percent on barley instead of 25 percent until 30th June 2010.
The meeting also approved amendment of paragraph 30 of the 5th schedule of the EAC Customs Management Act to include exemption of spare parts for machinery used in mining imported by licensed mining companies