It is believed that the vice is having an influence on tax revenues and poses a serious threat to the region’s industries and services
Moves to establish the single East African market are being destabilised by illicit trade, according to a new business report.
The research report released at the Commonwealth East Africa International Business Forum 2008 in Kigali Serena Hotel on Thursday indicates that East African countries are threatened by counterfeit, undeclared production and smuggling. All the vices are believed to be rising eight times higher than legal trade.
In a press statement, Commonwealth Business Council Director General Dr Mohan Kaul said that, “illicit trade is a growing menace within East Africa’s consumer goods market, and includes products which are smuggled, counterfeited or undeclared local production”.
“It undermines the investment needed to improve competitiveness, and producing the jobs and income needed to support families and public services,” he added.
It is believed that the vice is having an influence on tax revenues and posses a serious threat to the industrial and services industries, as well as public safety.
The report looks at the specific effects of illicit trade in tobacco, which the region’s largest cigarette supplier British American Tobacco (BAT) is estimated to be loosing around $61m (Rwf34.6 billion) in tax revenues annually from the East African Community (EAC).
The loss is due to cross border smuggling of genuine tobacco products manufactured in neighbouring EAC countries.
“We believe that globally illicit trade in tobacco products is around 6.4 percent of total consumption, whereas in East Africa the figure is nearer to 14 percent of the total market consumption - more than double the estimated global average,” said Jeremy Pike, BAT’s area Director for the Sub Saharan Africa Area.
Among the measures called for are faster harmonisation of tax levels, better enforcement and tougher penalties, and public education.
Pike said, a critical problem for all industries affected by counterfeiting or illicit trade is the lack of supervision of some free trade zones which have become conduits for smuggling and illegal trade.
“And we would like to see them subject to the normal inspection and supervision rules,” he added.
The report was produced to support the East Africa Business Council programme to combat illicit trade and counterfeiting to be launched next year.