Will Uganda’s tax harmonization efforts pay off?

By Ronnie Wonder

Africa’s biggest trading blocs are next month set to sanction the creation of a grand free trade area while still seeking consensus on tariff liberation and rules of origin of manufactured products.

The Common Market for Eastern and Southern Africa (Comesa) has been negotiating for agreeable tariff offers and the criteria for determining the national sources of products with its counterparts—Southern African Development Community (Sadc) and the East African Community (EAC).

This comes at a time when all partner states within the East African Community (EAC) are undertaking to harmonize their tax systems despite the gap brought about by different stages of development of its members.

It is hoped that this harmonization will help in preventing any national tax measures that could have a negative effect on the functioning of the planned common market arrangement.

The EAC protocol calls for harmonization and Uganda, as a partner state has been part of the policy formulations since last year with the objective of achieving harmony or uniformity in respect of VAT, Excise duty and other domestic taxes.

It is hoped that the harmonized tax regimes will help in eliminating price distortions that encourage tax evasion and allow more investment in the region, Uganda in particular. The harmonization will allow efficient allocation of resources – and encourage comparative advantage among member states. The process will enable states and its peoples excel in those aspects where they have comparative advantage.

For instance, the processes would encourage agrarian regions to concentrate on farm products that are lucrative within the regional market.

The objective of harmonization is to remove market distortions among EAC countries in a sense that local products churned out of local inputs should be subject to low taxes across the value chain. The final consumer would as well not feel the pinch of the tax inherent in the product consumed.

When harmonized tax regimes prevail within the region, the free movement of people, goods and services will greatly spur growth and investment opportunities that will lead to improved living standards among the populace within the community.

“The VAT and Excise Duty regimes are similar across the Partner States. What is required to harmonize are the rates,