Amidst reports of increasing illegal trade in the East African Community (EAC), the Rwanda’s private sector authorities are in the process of setting a roadmap that will facilitate combating the vice.
Through their umbrella organization, Private Sector Federation (PSF) authorities are now working on a document that will be presented to government with plan of action needed to combat the vice.
The process of consultation began last week (Thursday) with the federation organizing anti- illicit trade sensitization workshop for stakeholders.
The multi-faceted problem includes acts of; selling counterfeits, smuggling and under declared locally produced goods among others.
The vice poses a serious threat to the existence of the business community and loss of government revenue as competition stiffens with regional integration. It also possesses a threat to public safety.
“We are engaging the stakeholders to develop a document that will engage government for change. We want to protect local investors from facing stiff competition from some investors in the region who are dealing in sub-standard goods,” Lucas Murenzi, Director of Trade and Policy Advocacy at PSF told Business Times in interview.
Murenzi mentioned that stakeholders of the federation are concerned about the increasing number of cheap consumable products from the region on the Rwandan market.
According to the private sector, the profitability and market share of legally registered companies, especially those involved the manufacture of fast moving goods has been negatively affected by counterfeits and illicit trade.
“We have a received a reasonable number of complaints. There are a number of consumable products that do not come through the official dealers,” he said, pointing out that such goods are sold cheaply, attracting more customers leaving official dealers at a loss.
Notably illicit trade is lucrative in consumables such as biscuits, beers from Uganda and Burundi and human drugs sold in pharmacies.
While illicit trade has not yet become a serious problem in Rwanda compared to other EAC members, Murenzi said the country is potentially under threat as EAC regional integration takes root.
For instance, a fully fledged Customs Union due January 2010 will allow free movement of goods across the region.
According to a report released last year by the EAC Business Council, the community is threatened by counterfeit, undeclared production and smuggling. All the vices are believed to be rising eight times higher than legal trade.
“Due regional integration we expect an increase in cross –border trade. We have to draw a plan of action to address this problem,” Murenzi said.
The report also indicated that the region’s largest cigarette supplier -British American Tobacco (BAT), noted that due to illicit trade in tobacco its losing approximately$61m(Rwf.34.6 million) in tax revenues annually form EAC.
The loss is due to cross –border smuggling of genuine tobacco products manufactured in neighboring EAC countries.
Among the measures, the stakeholders called for a faster harmonization of tax structure, better law enforcement, tougher penalties and public education.
“Products tend to move from a lower tax structure economy to high tax structure.” said, Enock Walugembe, an officer from BAT, calling for a harmonized tax structure in the region.
Walugembe also observed that a persistent increase in taxes also facilitates illicit trade as those involved in the practice anticipate more profit.
“This is because it will make the product more expensive, giving a chance to smugglers to get a big profit margin,” Walugembe said.
To mitigate loss of government through illicit trade specifically smuggling, Rwanda Revenue Authority (RRA)’s Revenue Protection Department (RPD) has intensified enforcement measures. This involves intensifying land and lake surveillance as well as monitoring goods under customs control.
Recently RRA acquired two speed boats to facilitate anti-smuggling campaign along Lake.Kivu.
RPD also indicates that liquors, wines and spirits, Bitengi fabrics are often smuggled into the country (using informal channels) from DR Congo, Tanzania while general merchandise originates from Uganda.
Other products include engine oil, cigarettes, powdered milk (NIDO) and prohibited products like plastic bags and drugs like Marijuana.