Gitahi Gachahi, CEO, EY Eastern Africa, on the benefits of a regional Customs union

Gitahi Gachahi, CEO, EY Eastern Africa

The advent of a single Customs territory in East Africa (EA) has heralded a new dawn for importers in the region, with assessment and collection of taxes taking place in the country of destination before the cargo is released from the first port of entry. This is a major milestone in the region’s bid to attain a Customs union. With an estimated combined population of 130m, the EA region is a sizeable market. Under this system, importers and manufacturers alike are likely to find it easier to access this huge market. This should attract foreign, domestic and cross-border investment in the region as investors seek to tap into the market. The growing middle class, with its higher levels of disposable income, offers an added incentive for investment.

Kenya, Uganda and Rwanda have started implementing the single Customs territory, while Tanzania and Burundi are catching up. Importers are reporting a reduction in the cost of doing business due to the elimination of duplication of processes across member states. Customs officials from Uganda and Rwanda have set up offices at the port of Mombasa, ensuring that importers only make a single declaration of their cargo at the first point of entry, irrespective of the country of destination. For instance, importers have been saved the storage costs they used to incur to undergo several Customs processes as goods moved through each partner state before reaching their destination.

Once fully rolled out, transit regimes will only apply to goods originating from and destined for a non-member country through the partner states or a partner state. The cost of moving transit goods through the partner states to a foreign country will be reduced, as a single regional security bond will be required by importers, eliminating the need to lodge bonds in each partner state. Transporters are required to fit their vehicles with electronic cargo tracking systems, as well as electronic security seals to enable the monitoring of cargo within the East African Community (EAC).

Eliminating non-tariff barriers within the region will help smooth the flow of goods, and the reduction of checkpoints along the transport corridor will reduce corruption and cargo clearance delays. This will drastically cut the cost of transporting cargo to other partner states. A reduction in administrative costs and regulatory requirements is likely to further lower the cost of doing business in the region. Importers are in a position to use one clearing agent to clear their cargo through the various revenue authorities, as clearing agents of a particular partner state are allowed to set up shop in the other partner states. Harmonisation of domestic laws, quality standards and instruments of the partner states and other border agencies will continue to lower the cost of compliance for importers. The duplication of roles in various regulatory bodies in the region, such as the Kenya Bureau of Standards and the Uganda National Bureau of Standards, will be reduced, lowering the cost of regulatory compliance.

Port and border operations have also been enhanced using one-stop border posts, which allow the clearance of cargo exiting one border and entering another country in one process. This is being achieved through the use of the electronic single window system, which interconnects the different governmental agencies involved in Customs clearance and collection. Through the assessment and clearance of goods at the port of first entry, smuggling and dumping of goods at a regional level will be curbed, ensuring a fair playing field for scrupulous businessmen and importers. This is due to a reduction in the likelihood of transit goods being diverted to the regional market and distorting it.

The benefits of a single Customs territory for importers and the region in general are likely to enhance trade between the partner states and attract foreign investment to the region. The achievement of this, however, involves myriad challenges which must be surmounted through the concerted effort of the member states. Economies of scale and optimal use of resources in the clearance of goods in the EAC, as well as the creation of an internal single market, are among the benefits likely to be realised by the partner states.

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Gitahi Gachahi

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The Report: Kenya 2014

Tax chapter from The Report: Kenya 2014

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