Approvals delay EAC double taxation law

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.

READ: East Africa dithers over the DTA, loses investment

“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.

READ: EA Business Council again urges on double taxation

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.

Rwanda, Tanzania amend VAT laws as tax exemptions prove costly

East African countries are reviewing their taxation laws in a bid to reduce tax exemptions that have seen their economies lose out on revenue. TEA GRAPHIC | NATION MEDIA GROUP 

By ALLAN OLINGO, The EastAfrican

In Summary

• Tanzania is banking on the VAT Act 2014 to reduce tax exemptions, which will enable it to collect $500 million in additional revenue in the 2015/16 financial year.
• Rwanda has also reviewed its taxation regime, reducing various exemptions and reforming its VAT laws.
• Kenya also plans to remove most of the tax incentives that foreign firms who set up operations in the country have been enjoying in order to align the investment policies that county governments are formulating with those of the national government.

East African countries are reviewing their taxation laws in a bid to reduce tax exemptions that have seen their ............................... economies lose out on revenue.

In the past week, Rwanda and Tanzania have moved to effect new VAT Bills that deal with tax exemptions.

Last week, Tanzania’s Parliamentary Public Accounts Committee (PAC) asked the Minister for Finance to gazette the Vat Bill 2014 meant to reduce revenue leakage as a result of tax exemptions. This was after the Tanzania Revenue Authority (TRA) showed an increase in the country’s tax exemptions from $793 million for the 2012/2013 financial year to $964 million in 2013/2014.

According to TRA, exemptions for multinational companies engaged in exploration for natural gas and oil stood at $58.82 million while projects undertaken by state-owned firms enjoyed a waiver of up to $86.47 million.

The chairman of the PAC, Zitto Kabwe, said that the delay in enacting the VAT Act of 2014 would deny the government more revenues through the VAT-special reliefs in the current year.

TRA Commissioner-General Rished Bade said that in the 2013/14 financial year the VAT relief rose to $409.41 million from $335.90 million in 2012/2013.

“We have seen an increase in tax exemptions due to huge gas exploration projects and other donor-funded infrastructural projects. Projects that have enjoyed these exemptions include the construction of the pipeline to transport natural gas from Mtwara to Dar es Salaam and the construction of the Kigamboni Bridge,” said Mr Bade.

Tanzania is banking on the VAT Act 2014 to reduce tax exemptions, which will enable it to collect $500 million in additional revenue in the 2015/16 financial year.

The Act stipulates that the government, which previously had unrestricted powers to grant or amend exemptions, must seek approval from the National Assembly before it reviews, grants or abolishes a tax exemption. The Act also removes exemptions on imports for use in mining or oil and gas exploration.

Rwanda has also reviewed its taxation regime, reducing various exemptions and reforming its VAT laws. The Rwandan parliament last week passed a new draft law governing VAT, which awaits presidential assent.

READ: Rwanda tables new strategy to fast track investment

In the new law, VAT remains at 18 per cent of the value of goods or services sold. It also gives the line ministers powers to determine certain goods and services that may be exempted from VAT from time to time. The old law, which was enacted in 2012, was amended on the grounds that it did not provide for VAT exemption for certain goods and services that must be exempted.

“The IMF identified gaps in our tax system, including the issue of exemptions and incentives; they feel there is a lot of revenue leakage through the incentives, in particular legislative exemptions in terms of investment promotions,” Ben Kagarama, former commissioner-general of the Rwanda Revenue Authority told The EastAfrican last year.

Kenya also plans to remove most of the tax incentives that foreign firms who set up operations in the country have been enjoying in order to align the investment policies that county governments are formulating with those of the national government.

Kenya Investment Authority (KenInvest) chief executive officer Moses Ikiara said the plan is to remove the many tax incentives Kenya has been offering investors.

Why Museveni may face weak opposition

President Yoweri Museveni takes oath of office after winning last elections. PHOTO | FILE 

By GAAKI KIGAMBO

In Summary

• Only smaller parties — two of six opposition parties that fielded candidates in the last presidential race — Uganda Federal Alliance and the People’s Progressive Party appear to be focused on investing more of their resources in parliamentary and local council seats.

Even after an unprecedented inter-party co-operation helped Uganda’s opposition parties win 12 of ........................

Kenya’s anti-ICC protocol fails to find AU backers

The International Criminal Court's building (ICC) in The Hague, Netherlands. Cases facing Deputy President William Ruto and journalist Joshua Sang are ongoing at the court. PHOTO | FILE |  NATION MEDIA GROUP

By A JOINT REPORT, The EastAfrican

In Summary

• Kenya had been hoping to collect signatures from at least 15 of the AU’s 54-member states.
• It had been counting on the votes of Tanzania, which hosts the African Court, Rwanda, with which it enjoys close relations, and Uganda, whose President Yoweri Museveni has become a critic of the ICC but no such support was forthcoming.

Kenyan diplomats at the African Union Summit in Addis Ababa failed to persuade other countries to fast-track plans for.......................

US gives offensive on FDLR rebels thumbs up

UN-backed force will give Congolese solders logistical support. PHOTO | FILE |  AFP

By EDMUND KAGIRE

In Summary

• The Force Intervention Brigade set up by the UN in 2013 with a mandate of using force to rout out “negative” groups in eastern DRC is supported by troops from South Africa, Tanzania and Malawi.
• The force defeated the M23 rebels who wreaked havoc in eastern Congo in 2013.

The United States has welcomed the offensive launched by the DR Congo government forces against the Rwandan rebels based in the eastern part of the country.

Dominic Ongwen trial: War crimes perpetrator, victim or both?

Dominic Ongwen, a Ugandan commander in the LRA rebel group that is led by Joseph Kony, on his first appearance at the ICC in The Hague, the Netherlands, on January 26, 2014. PHOTO | FILE |  AFP

By DANIEL K. KALINAKI

In Summary

• By the age of 18 Ongwen had become a major. By the time he became a brigadier, in his early 20s, Ongwen had developed a reputation as a daring and fierce fighter and had become one of the top LRA commanders.

Around March 1990, a 10-year-old boy was walking to school in northern Uganda when he ran into rebels from the Lord’s Resistance Army.

How to use your time better this year

Safeguard your time jealously. Minimise any unscheduled activities as these will eat away at your precious time. Some things are not useful and yet take up quite some time. PHOTO| FILE| NATION MEDIA GROUP 

In Summary

• This is a basic tool to guide you in planning your day. Write down the things you plan to accomplish on a given day.
• A diary or planner will help. This way, you will keep in mind the things that are yet to be done as you go about other tasks.
• If you are prone to wasting time, give yourself a certain amount of time to do things. For example, you may indicate: washing and dressing up – 30 minutes, cleaning up – 30 minutes, etc.

By IRENE NJOROGE-KRISTIAN
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