Monitor - 23 June 2022
Kenya to lose highest revenue in continental trade agreement- research
What you need to know:
Each EAC partner state should establish internal measures to cover up for the revenue shortfall accruing from the continental agreement.
The agreement commenced in 2019 and has over 20 states from the African continental bloc.
New research by the Economic Policy Research Center (EPRC) at Makerere University shows that the African Continental Free Trade Agreement (AfCFTA) will mostly inflict revenue loss on Kenya in the East African region.
“Kenya will incur the largest loss at $14.2 million, followed by Uganda at $13.5 million. Tanzania is estimated to register revenue loss of $5.3million, Burundi $4.3million and Rwanda $ 3.9,” the research shows.
Considering proportional tariff revenue losses, Burundi is expected to incur the biggest at 30 percent, followed by Uganda at 7.6 percent, Rwanda 5.5 percent, Kenya 4 percent and Tanzania 3.7 percent.
“The overall result is that each EAC partner state will incur losses but at varying levels and proportions,” researchers observed.
These custom revenue losses for the EAC member countries are trade trends in the rest of Africa where tariff revenue has significantly reduced.
“There’s also trade diversion by other countries outside Africa that are exporting to other destinations due to increased tariffs in the continent,” the research explains.
Ms Jane Nalunga, the executive director of Southern and Eastern Africa Trade Information and Negotiations Institute (SEATINI) Uganda said “certain revenue loss for each participating country will be after short or medium term.”
“There is need for effective participation in the ongoing tariff negotiations as effective implementation of the AfCFTA will start after the member states have defined their schedules of tariff concessions,” she highlighted on June 22.
According to her, each EAC partner state should establish internal measures to cover up for the revenue shortfall accruing from the continental agreement.
“To leverage increase in volumes and value of trade for other broad-based taxes such as VAT to compensate for customs revenue loss, the onus is upon governments of respective EAC countries to strengthen institutional tax revenue administration to minimize revenue losses,” she noted.
Rwanda (72 percent), Burundi (69 percent) and Uganda (59 percent) mainly import from EAC member states while Kenya (68 percent) and Tanzania (64 percent) mainly import from outside the bloc.