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According to the EAC Secretariat, trade among the seven member states and the rest of Africa rose by $584.6 million to $4.3 billion in the fourth quarter of 2023 compared to the same period in the previous year
Kampala, Uganda | THE INDEPENDENT | East African governments are under mounting pressure from the private sector to fast-track tax harmonisation efforts, as diverging fiscal proposals for the 2025/26 budget cycle risk further complicating the region’s integration agenda.
Speaking during a pre-budget webinar hosted by the East African Business Council (EABC) and PwC, regional business leaders warned that disparities in domestic tax regimes are deterring investment, inflating compliance costs, and undermining the competitiveness of the East African Community (EAC) as a unified market.
Simon Kaheru, Vice Chair of the EABC, called on partner states to prioritise harmonisation of tax policy to facilitate cross-border trade and promote efficient resource allocation.
“Harmonising tax policy is critical to positioning East Africa as a compelling trade and investment destination,” he said.
Tax disparities
The call comes against the backdrop of growing policy divergence among EAC member states—particularly Kenya, Uganda, Tanzania, and Rwanda. Corporate income tax rates vary, ranging from 28 percent in Rwanda to 30 percent in Kenya, Uganda, and Tanzania.
Payroll taxes also differ significantly. In Tanzania, employers contribute 14 percent of salaries toward various levies, including social security, the skills development levy, workers’ compensation, and maternity benefits. This compares with 10 percent in Uganda and 8.3 percent in Rwanda. Employees face additional disparities in income tax and social security contributions—ranging from 35 percent in Kenya to 45 percent in Uganda.
Progress on excise duty harmonisation—outlined in the EAC’s 2019 policy framework—has been slow. A regional proposal to fix excise duty at $6 per litre of 100 percent alcohol content remains under debate, with disagreement persisting over appropriate rates for tobacco, sugary beverages, and fossil fuels. For instance, Uganda supports an IMF-recommended minimum of $0.06 per gram of tobacco, while Tanzania proposes $0.014 per gram, and Kenya, Burundi, Rwanda, and South Sudan back a $0.05 per gram minimum.
These fiscal disparities are further entrenched by national finance bills currently under review. Kenya’s proposed changes include limiting tax loss carry-forwards to five years, scrapping investment deductions outside Nairobi and Mombasa, and expanding the definition of royalties to include software payments. Uganda, on the other hand, has proposed a three-year income tax exemption for small, citizen-owned businesses and an increase in excise duties on fuel and cigarettes.
Meanwhile, Rwanda has launched a comprehensive six-year tax reform plan aimed at broadening its tax base and reducing dependency on external financing. The proposed measures include a new 1.5 percent digital services tax, higher capital gains tax, excise duty hikes on alcohol and tobacco, and the removal of exemptions on ICT products and hybrid vehicles. “These reforms will align Rwanda’s tax regime with regional benchmarks while advancing health and environmental goals,” said a finance ministry official.
For businesses operating across EAC borders, the lack of tax coherence creates complexity and uncertainty. Withholding tax on dividends and services for non-residents ranges between 10 and 15 percent, creating what the EABC has termed a “discriminatory environment” for intra-regional service providers. VAT structures and refund periods also differ—Kenya is proposing to cut its refund period from 24 to 12 months, while Uganda is tightening rules on imported goods and revising VAT exemptions.
Private sector views inclusion
The EABC is urging all partner states to incorporate private sector feedback in their final budget proposals, expected to be read simultaneously this June. Recommendations include reducing Tanzania’s excise duty on telecom services from 17 to 10 percent, faster passage of finance bills, and more favourable tax regimes for small enterprises.
Adrian Raphael Njau, Acting Executive Director of the EABC, encouraged businesses to participate actively in national pre-budget consultations to influence tax policy in support of regional integration.
“The lack of tax alignment across the region is an obstacle to a truly unified market. Engaging early with governments is key to ensuring private sector priorities are reflected in fiscal decisions,” he said.
The region’s economies rely heavily on the export of agricultural commodities, manufactured goods, and services such as tourism, ICT, and financial services. While trade within the EAC and with the rest of Africa has grown, it remains dominated by primary commodities such as coffee, tobacco, cotton, rice, maize, wheat, and tea.
Nonetheless, trade in manufactured products—including cement, petroleum, textiles, sugar, beer, salt, fats and oils, steel, paper, plastics, and pharmaceuticals—is steadily increasing. This trend supports the bloc’s industrialisation agenda and points to the need for a more harmonised business environment to unlock the full potential of regional value chains.
Encouragingly, the EAC has recorded a surge in intra-African trade, reducing dependence on markets in Europe and Asia. According to the EAC Secretariat, trade among the seven member states and the rest of Africa rose by $584.6 million to $4.3 billion in the fourth quarter of 2023—a 14 percent increase compared with the same period in 2022.
This shift signals that East Africa is moving steadily toward realising the African Continental Free Trade Area (AfCFTA) vision of greater economic self-reliance through increased intra-African commerce.
