Opinion
Double taxation a stumbling block towards trade boost in EAC
Publish Date: Aug 15, 2014
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By Mbabazi Peninnah

The Common Market Protocol is a significant step towards the achievement of the next milestones in the integration process which was signed on 20th November 2009 by the five East African Community partner states: Burundi, Kenya, Rwanda, Tanzania and Uganda.


The Common Market Protocol aimed to provide free movement of goods; labour; services; and capital, which will significantly boost trade and investments and make the region more productive and prosperous.

With the integration process still in progress, it’s becoming a challenge to boost trade within the East African Community because of the double taxation. The double taxation occurs when two different countries levy a similar tax on the same transaction or income.


For instance, under the current tax laws of EAC member states, a company with a branch in another country within the region faces the dilemma of being taxed twice on its annual income; it will pay corporate tax both at the branch in the host country and at the parent company in the country where it is headquartered. Despite the fact that there is a non-double taxation treaty among EAC members that requires companies to be taxed only once, this has not been to be implemented.


A double taxation treaty means that an income which has already attracted any form of taxation any form of taxation in the signatory country cannot be subjected to another levy by any of the other countries involved. It is only Rwanda that has ratified the EAC agreement on Double Taxation Avoidance (DTA) which was signed in September 2010, and was to be implemented within a year.


Consequently, Double Taxation treaties reduce the tax burden on tax payers involved in transactional-businesses. The implementation of a Double Taxation treaty within the EAC bloc will boost in regional trade.


The advantage of the treaty to companies would enable them to expand their operations throughout the region, creating numerous jobs in the process given the significantly lower tax burden they would be subjected to. This will enable companies to re-invest in their enterprises. A double tax treaty will provide certainty to investors who will bring more cash flow into the country encouraging more economic growth within the country.


However, while the EAC countries are cautious about implementing the DTA, most have similar arrangements with other countries outside the block. Uganda shares a non-double taxation treaties with the United Kingdom, Zambia, Denmark, Norway, South Africa, India, Italy, the Netherlands, Mauritius and Belgium while Kenya has such ties with India, Denmark, Germany, the United Kingdom, Sweden, Zambia, Norway and Canada. Rwanda has agreements with South Africa, Belgium and Mauritius. Tanzania has signed tax agreements with South Africa, Canada, Denmark, Finland, India, Italy, Norway, Sweden and Zambia. Burundi has no such tax agreements.


Double taxation is a stumbling block threatening intra – EAC – trade in the region and the full implementation of the EAC common Market Protocol. The purpose of the double taxation is to lower a worsening tax burden and boost cross-border movement of capital. The EAC still dithers over the Double Taxation Agreement, which is a blow to the economy.


It places financial burdens on firms with a cross-border presence and hinders the regional movement of capital. 


The matter towards delay over the implementation of the DTA treaty needs to be addressed as its becoming increasingly impossible for businesses to sustain operations across the region. The law makers in the East African partner states to align tax laws with the Double Taxation Agreement Protocol.

The writer works at Uganda Debt Network

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