The document summarizes the East African Community's (EAC) efforts to harmonize tax policies and laws among its partner states of Burundi, Kenya, Rwanda, Tanzania, and Uganda. Key areas of harmonization include income tax, VAT, excise duties, tax procedures, incentives, and an agreement to avoid double taxation. While progress has been made developing relevant policies and directives, full implementation requires the partner states' commitment to ratify agreements and align their domestic laws and procedures accordingly. Capacity building initiatives also aim to strengthen cooperation on matters like exchange of tax information.

1. Alexis Nzitonda, EAC- GIZ Project
December, 2014
Arusha

2. } The East African Community (EAC) is a
regional intergovernmental organisation
of the Republics of Burundi, Kenya,
Rwanda, the United Republic of
Tanzania, and the Republic of Uganda.
} The EAC aims primarily at widening and
deepening the economic cooperation
between the Partner States.

3. } A Customs Union was established in 2005. The
Customs Union Protocol, subsequently agreed
to, features the removal of internal taxes and
non-tariff barriers on intra-EAC trade.
} The introduction of a common external trade
policy through the common external tariff, and
the introduction of a list of sensitive products
provide additional protection.

4. } The achievement of the common market which
entered into force on 1st July 2010 is a strong
commitment to deepen and widen EAC
integration.
} The tax neutrality is very critical for a good
functioning common market. It ensures that the
tax systems of the Partner States should
interfere as little as possible with free trade and
free competition on the assumption that the
market achieves the most efficient allocation of
resource.

5. } T h e o v e r a l l o b j e c t i v e i s t o f o s t e r i n g
competitiveness, employment, and further
contribute to the sustainability of public finances in
the Community in order to promote investment,
free movement of goods and sevices in the
Community in accordance with the Treaty and the
Common Market Protocol.
} The tax harmonization aims to ensure that national
tax rules are consistent with the Community’s
overarching goal of improving the welfare of East
Africans and that they do not give businesses from
one country an unfair advantage over their
competitors in another country.

6. 6
— Article 75 Customs union-
— Article 76 on Common Market-
— Article 80 1 (f) harmonise and rationalise investment
incentives relating to taxation of industries
(h) avoid double taxation
— Article 83 2 (e) of EAC Treaty, PS shall harmonise
their tax policies

7. 7
Study undertaken in 2009, covered all the Partner States,
made recommendations for harmonization;
Specific 17 point work plan giving detailed areas for
harmonisation was agreed on, in Nov. 2009.

8. The main areas identified for tax harmonisation were:
} Income tax Harmonisation;
} VAT Harmonisation;
} Excise Taxes Harmonisation;
} Tax procedures harmonisation;
} Tax incentives harmonization;
} Code of conduct against harmful tax practices;
} Develop an EAC DTA Model;
} Agreement on avoidance of Double taxation across the Partner
States;
} Transparency and Information Exchange.

9. } The prime objective for harmonization of Income tax is;
◦ fostering competitiveness,
◦ employment, and
◦ further contribute to the sustainability of public finances in the
Community
To promote investment, free movement of goods and services in
the Community in accordance with the Treaty and the Common
Market Protocol.

10. } No definition of Tax policies harmonization in EAC Treaty
} Sectoral Council for Finance and Economic Affairs (SCFEA) held
a meeting in Nairobi, March 2014 and approved the ToRs to
develop the Income tax, VAT and Excise duties harmonization
Policies.
} With GIZ support, EAC Secretariat hired consultants to develop
Income tax, VAT and Excise duties policies.
} Validation session were held in September and October 2014
} Policies approved by the subcommittee in charge of EAC Tax
Policy and Tax administration and submitted to CFA and SCFEA
(October, 2014);
} The SCFEA directed CFA to refine the Tax harmonization
policies early February 2015.

11. } Principles of corporate taxation;
} Taxation of individual income;
} Aspects of transfer pricing;
} EAC DTA and EAC Model DTA;
} Exchange of Information and Mutual
Assistance.

12. } VAT taxation following destination or source
principle;
} Determination of exempt and zero rated
supplies;
} Exemptions and remissions;
} Determination of taxation rates;
} VAT treatment of cross border services; and
} Deduction of input tax on imported services.

13. } Determination of dutiable goods and service;
} Determination of duty rates (ceiling and
floor); and
} Determination of rules on local content.

14. } The SCFEA in March held a meeting and noted the progress on
EAC tax Procedures harmonization.
◦ The draft Council Directive (CD) have been developed by the
taskforce meeting held in Bujumbura Feb. 2014 composed of
experts from Partner States to draft a Council Directive on
harmonized tax procedures.
Ø After consideration and approval, SCFEA recommended to
Council to adopt the draft Directives on alignment of tax
procedures.
Ø On 20th Sept. 2014, the harmonized CD on EAC tax
procedures was adopted by Full Council.
Ø Partner States are required to implement the Directive in a
period of one year.

15. } SCFEA was informed in its’ meeting held in March 2014 that
EARATC with the support of IFC conducted a study on tax
incentives in the EAC which comprised of four components:
◦ Inventory of tax incentives in the EAC
◦ Administration of tax incentives
◦ Investor motivation surveys for all the 5 EAC PSs
◦ Costs and benefits analysis of tax incentives/expenditure in
the EAC.

16. } The Income tax, VAT and Excise duty TWG validated the
Tax Incentives study in Nov. 2013 and developed a draft
roadmap for harmonization
} The TWG proposed that the method of harmonization be
through Directives issued by the Full Council of Ministers.
} SCFEA adopted the roadmap and the use of Council
Directives (CD) as the Instrument for harmonization of tax
incentives in the EAC.
} The CD for harmonization of tax Incentives was reviewed
and approved by the subcommittee for Tax Policy and
administration in October 2014.

17. } The Income tax TWG developed a draft Code of Conduct
against Harmful Tax Competition and a draft Model EAC
Tax Convention for the Avoidance of Double Taxation
and the Prevention of Fiscal Evasion with respect to
Taxes on Income.

18. } The draft Code was discussed at SCFEA in March 2014.
} The meeting noted the following;
◦ Need for a transition mechanism in the code and among others
◦ review article 4 on the Governement agreements,
◦ article 6 on secrecy,
◦ article 12 on the establishement of the committee to oversee the
implementation of the code.
} The meeting suggested that the code be reviewed by a technical team
(comprising of Tax policy members from the five Partner States) and
report back to SCFEA.
} The tax policy and tax admin experts of the PSs meet and reviewed
the report (Oct. 2014) and recommended for its adoption by CFA and
SCFEA

19. } The Income tax TWG drafted the EAC Model DTA.
} SCFEA held a meeting in September 2013 and required
that commentaries to the EAC Model DTA be developed
given the recent amendments to the UN and OECD
Model Conventions, SCFEA required that those
amendments be taken into consideration for the EAC
Model DTA.
} This was done and validated by the Income tax TWG in
March 2014.
} Now waiting to be considered after the policy on
harmonization of Income tax.

20. } The Income Tax TWG validated the Agreement on Avoidance of
Double Taxation and the Prevention of Fiscal Evasion with
respect to Taxes on Income (EAC DTA) and it was signed by
the five Partner States, Nov. 2010.
} The EAC DTA was later approved by the EAC Full Council
meeting and sent to PS for Ratification.
} Currently only Rwanda have ratified it, the SCFEA directed the
remaining EAC PS to ratify it.

21. } Capacity building on tax treaty interpretation and
negotiations via an online course was conducted by GIZ
in cooperation with ATAF for the EAC secretariat
(period March-June 2014)
} The course was designed to provide basic knowledge
required to understand the rationale for tax treaties and
skills for negotiation and interpretation applied for the
avoidance of double taxation in accordance with
international and regional Tax treaties Models.
} Phase II of classroom trainings commenced in August
and October in Kenya and Mauritius.

22. } With GIZ support, EAC Secretariat conducted national and
regional trainings on EoI on tax matters for Revenue
Authorities and Ministries of Finance in all five Partner
States.
} The focus of the trainings was on the EAC DTA, and the
corresponding MoU on “the Exchange of Information on
Tax Expertise and Other Related Matters” in line with
Article 27 of the EAC DTA.

23. } In January 2014, the EAC requested Ministries of Finance
to delegate powers for EoI to its’ Revenue Authorities, only
Rwanda, Tanzania and Uganda have done this;
} In March EAC requested Revenue Authorities to nominate
three officers who will form the Competent Authority unit,
the PS haven't yet done this;
} In cooperation with the OECD Global Forum on
transparency, the EAC Secretariat conducted a training
session for Competent Authorities in tax matters in the
EAC, for Revenue Authorities.
} In cooperation with Mauritius Revenue Authority EAC CAs
made a study tour in Mauritius in November 2014.

24. } Partner States commitment to implement
Council Decisions
◦ Ratification of the EAC DTA
◦ Implementation of the CD on alignment of
EAC Tax procedures

25. Ø Tax incentives harmonization
Ø Code of conduct on harmful tax practices
Ø Exchange of Information on Tax matters
– Joining the GF
– Establishment of an EoI unit
– Delegation of powers by MoF to RAs to be the
Competent Authority
– Appointment of Competent Authorities

26. } THANK YOU