Trucks await clearance at the Mutukula border between Uganda and
Tanzania. Companies with cross-border investments in EAC are taxed
twice. PHOTO | FILE
By JAMES ANYANZWA, The EastAfrican
In Summary
- The agreement is expected to lower taxes and increase cross-border investments.
- The
initial deadline was July last year, but it was extended to November
2014 after all the EAC member countries failed to meet the timelines.
- Currently,
EAC governments tax income earned by investors both in the country
where it is generated and in the country where the taxpayer originates,
subjecting companies to the double taxation dilemma.
Uganda, Tanzania and Burundi are
yet to secure internal approvals for ...............................the Double Taxation Agreement (DTA)
to operate in East Africa, five years after the deal was struck. This
has left companies with cross-border investments paying tax twice on
their incomes.
The DTA among the EAC member states was signed on
November 30, 2010, but there has been little progress in terms of
fast-tracking internal approvals by member countries, including securing
Cabinet or parliamentary sanctions to implement the pact. Countries
must seek either Cabinet or parliamentary approval to adopt
international treaties.
The initial deadline was July last year, but it
was extended to November 2014 after all the EAC member countries failed
to meet the timelines. The agreement is expected to lower taxes and
increase cross-border investments.
“We expect everybody to be ready by now because
that was the last deadline,” an official from Kenya’s National Treasury
who did not want to be named said.
Only Kenya and Rwanda are ready for the operationalisation of the agreement.
Kenya’s Principal Secretary in charge of East
African Affairs John Konchellah said the two countries have deposited
their internal consent documents with the EAC Secretariat and dismissed
fears that there is lack of commitment from their regional counterparts.
“Basically there is a lot of goodwill on the
integration of the EAC because it is in the interest of everybody that
we go in that direction,” Mr Konchella told The EastAfrican last week.
Currently, EAC governments tax income earned by
investors both in the country where it is generated and in the country
where the taxpayer originates, subjecting companies to the double
taxation dilemma.
Tax experts say the delay in the implementation of
the EAC DTA will discourage cross-border investments, negatively affect
economic growth rates and undermine the gains from regional
integration.
“On EA tax treaties, we have been waiting for as
long as I can remember. Not having a treaty means that a business can be
taxed on the same income in more than one country in the region,” said
Nikhil Hira, a tax partner at Deloitte & Touche East Africa. “For
example in Kenya, if we don’t have a treaty with a country then any
withholding tax deducted on invoices to another country is not
recoverable in Kenya, we are effectively subjecting the income to
double taxation.”
Kenya is the biggest investor in Tanzania, while
Uganda is Kenya’s biggest trading partner. Uganda is also Rwanda’s
biggest trading partner.
Endorsing the agreement is expected to save
companies millions of dollars in tax and provide greater incentives for
cross-border investments. According to the National Treasury, Kenya has
negotiated rates of between 10 per cent and 12.5 per cent under the DTAs
with its counterparts.
The rates are charged on interest, dividends and royalties, including management and technical fees earned by investors.
“We have very many double taxation agreements with
several countries. We sign these agreements depending on the value and
market rates,” said Henry Rotich, Kenya’s Cabinet Secretary in-charge of
the National Treasury.
