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Coming of age at 21? East Africa, we have a dream!

Tuesday July 20 2021
Dream pic
By David Tarimo

East Africa, “we have a dream”, to rephrase Martin Luther King (MLK)! 21 years ago, on July 7, 2000, the East Africa Community (EAC) Treaty came into force (following its signature on November 30, 1999 and then ratification by the founding Partner States - Kenya, Tanzania and Uganda). Subsequent full members include Rwanda and Burundi (from July 1, 2007), and South Sudan (from August 15, 2016).

A 21st birthday is a popular threshold for coming of age, and so an occasion for celebration. In practice, the November 30 (signature date) is the EAC anniversary that is celebrated - though this date is more like the “conception” date with the actual “birthday” being July 7 (when it came into force). But any celebration of the EAC’s coming of age is a bit nuanced for EAC acolytes in Tanzania, who might cite Stevie Wonder’s lyrics in his “Happy Birthday to you, happy birthday” ode to MLK that go “Because it should never be, Just because some cannot see, The dream as clear as he, That they should make it become an illusion”.

So, what is the EAC “dream”? Well the EAC states its “vision” and “mission” respectively “to be a prosperous, competitive, secure, stable and politically united East Africa”, and “to widen and deepen economic, political, social and cultural integration in order to improve the quality of life of the people of East Africa through increased competitiveness, value added production, trade and investments”.

The first significant step in realising this dream was the March 2, 2004 signature of the protocol for establishment of the EAC Customs Union, which became operational from January 1, 2005. Notwithstanding ongoing challenges with non-tariff barriers, the result has been to encourage intra-EAC trade in goods.

The second significant step was the signature on November 20, 2009, the 10th anniversary of the EAC treaty signature, of the protocol to establish an EAC Common Market so as to promote not just the freedom of movement for goods (as under the Customs Union), but also for labour, services, capital and the right of establishment. To make this freedom a reality, the protocol committed the Partner States “to progressively harmonise their tax policies and laws on domestic taxes with a view to removing tax distortions in order to facilitate the free movement of goods, services, and capital, and the promotion of investments within the Community”.

However, whilst the tax and regulatory challenges for trade in goods have been well articulated, there has been insufficient focus on such barriers for services, capital and investment.

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Historically, Tanzania has tended to display lukewarm or begrudging acceptance of the protocol commitments – particularly on services. And yet, to quote the East African Common Market Scorecard 2016 “if the EAC Common Market is to achieve the envisaged objective of accelerating economic growth and development of the region, the Community must leverage the potential of service integration to not only drive this growth, but also play a structural, transformational role as a growth enabler”.

Electronic communications is one service area that people can closely relate to, and feel the benefits of, if regulatory or tax distortions in the region are removed. One step in this direction relates to the EAC’s unified telephone roaming system, which all EAC members other than Tanzania and Burundi have joined. Positive news in The Citizen of July 6, 2021 was the confirmation of Tanzania’s expected implementation of this from September 30 this year.

A further example of prevarication by Tanzania (again together with Burundi) relates to ratification of the EAC double tax agreement (DTA). This sorry tale started in 1997 with the signature of a version of the DTA that was never operationalised, and then continued with the signature in 2010 of a revised version of the DTA subsequently ratified by all states other than Tanzania and Burundi.

Given this delay, Tanzanians could be forgiven for singing the lyrics of the song ‘Illusion’ (by the group ‘Imagination’): ‘Hoping that I’ll never have to say, It’s just an illusion, (ooh, ooh, oh, ooh, ah) illusion, (ooh, ooh, oh, ooh, ah) illusion!’ But again there was positive news in The Citizen on July 9, 2021 with a report that the Kenya-Tanzania trade mission held on July 8, 2021 had re-emphasised the need for Tanzania to ratify the DTA.

If operationalised the DTA would help remove some tax impediments (by way of income tax) to the movement of people and services within the EAC. One illustration of a tax impediment is the potential double taxation of an individual if income tax resident in more than one EAC country. A simple example to understand is the Maasai whose meanderings often span Tanzania and Kenya, but a more practical concern is for those on long term work assignments in one EAC country but with their ultimate home base in another EAC country.

Again, a transaction for services between EAC countries is subject to very high withholding tax rates (15-or-20 percent), which the DTA would cap at 10 percent (though ideally it would be lower still, say 5-or-0 percent). The DTA would also mitigate the potential double taxation risk of EAC Revenue Authorities not aligning on transfer pricing arrangements for transactions between related companies.

Sibling jealousy is legend - and with the prospective ratification by Tanzania (‘birth’) of the African Continental Free Trade Area (AfCFTA), the EAC (as the ‘oldest child’) will be seeking even more (‘parental’) attention from Tanzania as one of the EAC’s founding members. So, what to do? Well, as this is its 21st year, why not an appropriate birthday present? And if so, what?

Well, why not ratification by Tanzania of the EAC DTA? Indeed, with the new mood of proactive EAC engagement catalysed by President Samia Suluhu Hassan, there is optimism that this action will be prioritised, so that (to rephrase Stevie Wonder) “they should NOT make it [the EAC common market] become an illusion” but, instead, a reality. ‘East Africa, we have a dream!’