A new regional trade arrangement that allows goods originating from the four partner states of the East African Community (EAC) to enter into the country duty free has commenced.
The development follows the expiration of the five months transition period of the Customs Union that ended on 31st December 2009.
EAC is now under a fully fledged Customs Union with goods originating from one partner state to another circulating freely without incurring any duties.
The customs union came into force in January 2005 in the community’s original states of Uganda, Kenya and Tanzania respectively.
According to earlier arrangements, Kenya’s exports to Uganda and Tanzania would maintain internal tariffs with intentions of phasing them (taxes) out gradually in five years.
However, Rwanda and Burundi new entrants to the community started implementing the customs union in July 2009, two years after entry into the regional bloc.
Joining the EAC Customs Union means that the Rwanda would adopt a three band duty rate structure. Rwanda is now imposing an import duty of 25 percent on finished goods, 10 percent on intermediate products and 0 percent on raw materials and capital equipment.
Finished goods entering Rwanda have been attracting 30 percent, 15 percent intermediate products, 5 percent on raw materials and zero percent for capital goods.
“Goods from the community that comply with the rules of origin criteria enter duty free,” said Eugene Torero, the Deputy Commissioner General of Rwanda Revenue Authority (RRA) confirming the development to Business Times on Monday.
Torero who also doubles as the Commissioner for customs also observed that as member of the COMESA, the country was already trading free with Kenya and Burundi 100 percent, 80 percent with Uganda under the COMESA Free Trade Area.
While the free trade will reduce tax collection across the borders, Torero noted that the loss will be mitigated by the increase in domestic taxes such as Value Added Tax (VAT) and Excise Duty.
The above taxes have been contributing above 30 percent of the total revenue collections.
A senior Trade Official at the EAC Secretariat observed that despite their recent entry into the Community, the new entrants were even readier than the original 3 countries to implement the fully fledged Customs Union.
“Rwanda and Burundi started implementing zero tariff on intra regional trade from 1st July 2009 while Uganda and Tanzania were still charging duties on affected products originating from Kenya to their respective territories,” Peter Kiguta , the Director General Customs & Trade at the EAC Secretariat told Business Times on Monday.
Kiguta also mentioned that in case a partner state encounters some difficulties in complying with the legal instruments, there are provisions on safeguard measures it can invoke.
The process is expected to increase intra-regional trade by 14 percent by the end of the year, up from 12 percent when the Customs Union was launched in 2005.
“This will make countries that had small markets now more attractive to investors, since investors can access the larger market regardless of where their industries are located,”
Kiguta also urged the private sector to embrace the Customs Union and reach out to exploit the opportunities it will offer.
It is estimated that intra-EAC trade has grown by over 40 per cent in the period of the implementation of the Customs Union.
The Customs Union has also been credited with helping the region to attract more foreign direct investment.