banking

Tanzania firms get nod to import raw material for wire products tax free-

August 29, 2022

Tanzanian companies have been granted exemption on imported products that attract 35 percent duty, barely a month after the EAC Common External Tariff came into force.

In a legal notice signed by the EAC Council of Ministers chair Betty Maina, the companies can now import, at zero percent for a year, raw materials and inputs for the manufacture of wire products.

The decision follows an application by Afriweld Industries, Tanuk Africa Ltd, MM Integrated Steel Mills and other firms for duty exemption.

This came just as the region started to implement the four-band Common External Tariff (CET) structure that came into force on July 1.

The structure has rates of zero, 10, 25 and 35 percent for all products imported into the EAC.

The maximum tariff band of 35 percent was considered the most appropriate rate as it has a positive impact on regional growth. However, Tanzania’s successful application has raised questions on whether the determination of the maximum CET tariff rate is implementable when countries are facing a shortage of products that fall under the band.

Among the finished products the companies want to import at zero percent are nails, welding electrodes, wire and wire mesh.

“A remission of import duty is approved for Tanzania for 12 months to apply a duty rate of zero percent for the specified manufacturers on raw materials and inputs for the manufacturers of wire products,” said Ms Maina, Kenya’s Cabinet Secretary for Trade and EAC.

The private sector that pushed for the implementation and adoption of the high duty on imported goods that are readily available in the market is concerned that such decisions could negate the purpose for the implementation of the CET in the region.

Private sector

“A duty exemption request without an economic justification could erode the gains made in those trade bands,” said John Kalisa, chief executive of the East African Business Council.

According to the private sector, the items proposed for the fourth tariff band are those sufficiently produced in the region hence social welfare erosion does not arise.

In addition, the new tariff structure has a list of sensitive items with import duty rates higher than 35 percent, ranging from 50 to 100 percent.

The rationale of the fourth band is to support development through increased intra-regional and continental markets and diversification of product base, including building on informal sector potential.

Classification

The main criteria used to classify goods at a 35 percent tariff are availability of the products and promotion of sectors with a long value chain — key sectors outlined in the EAC industrialisation strategy such as textiles and apparel, iron and steel, hides and skin, and chemicals.

The 35 percent tariff significantly eliminates the use of Stays of Application since some of the EAC partner states are currently applying 35 percent tariff rates on more than half of the products that qualify for the fourth tariff band.

“Duty exemptions can be requested where there is a proven shortage of the products or material in question. Perhaps that is why those companies requested for duty exemption,” said Mr Kalisa, adding that due to the economic crisis brought about by the Ukraine-Russia war, some countries have been granted duty exemption on certain items including food.

While releasing the CET guidelines on August 11, the EABC argued that the 35 percent tariff rate provides an adequate tariff differential of 10 percent which is required to incentivise industrial investments in EAC.

“Products identified for the 4th band were those that are sufficiently manufactured/available in the EAC region,” the circular explained.

“The tariff lines to be classified under the 4th band represent just 8.37 percent of the total EAC tariff lines and hence have little impact on consumer price since they can be accessed duty-free in the region and other markets in which the EAC has free trade arrangements such as Comesa, SADC and AfCFTA.”

The proposed 35 percent tariff rate resulted from a consultative process with EAC private sector.

Many products are currently lumped in the 3rd band of 25 percent CET rate which is for products not available in the region.

“The tariff differential between 25 percent and 30 percent is not sufficient to attract investment in the region as opposed to 35 percent,” the circular adds.

Kevit Desai, Kenya’s Principal Secretary in the Ministry of EAC and Regional Affairs, said duty exemption requests should be based on the industrialisation level within the region.

“The EAC partner states do ask for duty remissions. The main aim is to ensure that we transition imports to local manufacturing. So it is normal because there could be a supply and demand issue,” said Mr Desai.

“Why duty exemption is requested should be based on industrialisation within the EAC. The whole point is that the CET is still in transition into local manufacturing where we can keep our own jobs.”

The most affected imports that EAC partner states have up to consider, since July 1, include iron and steel, dairy and meat products, cereals, cotton and textiles, edible oils, and beverages and spirits. These items will now cost more to import in order to protect the local industries.

Exemptions basis

“Duty exemptions are fine to a certain extent but if only it is on the basis of no local supply. If it is due to supply, then we should be loyal to our manufacturers.

‘‘The whole point of this is to promote employment. The minute we start importing we lose out in many different ways in comparison to simply manufacturing,” said Mr Desai.

“We need to note that the growth of the construction industry is at 67 percent on the continent as far as building is concerned. So it is high time that we transitioned to local manufacturing.”

The CET fourth band was also implemented for purposes of strategic goods, food security and rural development.

The decision follows an application by Afriweld Industries, Tanuk Africa Ltd, MM Integrated Steel Mills and other firms for duty exemption on wire/steel products.

This came just as the region started to implement the four-band EAC CET structure that came into force on July 1.

The new four-band CET structure has a minimum rate of zero, 10, 25 and 35 percent for all products imported into the EAC.

The maximum tariff band at 35 percent was considered the most appropriate rate as it has the most positive impact on regional growth.

However, Tanzania’s successful application has now raised questions on whether the determination of maximum CET tariff rate for fourth band products at 35 percent is implementable when countries are facing a shortage of products that fall under the band.

Among the finished products the companies want to import at zero percent are nails, welding electrodes, wire mesh, and wire.

“A remission of import duty is approved for Tanzania for 12 months to apply a duty rate of zero percent for the specified manufacturers on raw materials and inputs for the manufacturers of wire products,” said Ms Maina, Kenya’s Cabinet Secretary for Trade and EAC.

Now, the private sector that pushed for the implementation and adoption of a high duty on imported goods that are readily available in the market is concerned that such decisions could erode the purpose for the implementation of the CET in the region.

The East African Business Council cautioned that an application for duty exemption on products that fall within the 4th band could erode the need to protect local manufacturers and should only be granted if there is a strong economic justification.

“A duty exemption request without an economic justification could erode the gains made in those trade bands,” said John Kalisa, chief executive of EABC.

According to the private sector, in terms of the social welfare erosion, the items proposed for the 4th tariff band are those sufficiently produced in the region hence welfare erosion does not arise.

In addition, the new tariff structure has a list of sensitive items with import duty rates higher than 35 percent ranging from 50 to 100 percent.

The rationale of the 4th band is to support development through increased intra-regional and continental markets and diversification of product base including building on informal sector potentials.

The main criteria used to classify goods under the 4th band which attract a 35 percent tariff are: availability of the products, promotion of sectors with a long value chain – key sectors outlined in the EAC Industrialization strategy such as textiles and apparel, iron & steel, hides and skin, chemicals.

Further, the 35 percent tariff significantly eliminates the use of Stays of Application (SOAs) since some of the EAC Partner States are currently applying 35percent tariff rates on over 50 percent of those products that qualify for the 4th tariff band.

“Duty exemptions can be requested where there is a proven shortage of the products/material in question. Perhaps that is why those companies requested for duty exemption,” said Kalisa, adding that due to the economic crisis brought about by the Ukraine-Russia war, some countries have been granted duty exemption on certain items including food stuff.

Kenya’s Principal Secretary, Ministry of EAC and Regional Affairs Dr Kevit Desai said duty exemption requests should be based on the industrialisation level within the EAC.

“Broadly speaking this is normal for them to ask for remissions. The EAC Partners states do ask for duty remissions. The main aim is to ensure that we transition imports to local manufacturing. So it is normal because there could be a supply and demand issue,” said Dr. Desai.

“Why duty exemption is requested should be based on industrialisation within the EAC. The whole point is that the CET is still in transition into local manufacturing where we can keep our own jobs.”

The most affected imports that EAC partner states have up to consider since 1st July 2022, include; iron and steel; dairy and meat products; cereals; cotton and textiles; edible oils; and beverages and spirits, which will now cost more to import in order to protect the local industries.

“Duty exemptions are fine to a certain extent but if only it is on the basis of no local supply. If it is due to supply, then we should be loyal to our manufacturers. The whole point of this is to promote employment. The minute we start importing we lose out in many different ways in comparison to simply manufacturing,” said Dr. Desai

“We need to note that the growth of the construction industry is at 67 percent on the continent as far as building is concerned. So it is high time that we transitioned to local manufacturing.”

The CET 4th band was also implemented for purposes of strategic goods, food security and rural development.

theeastafrican



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