Uganda has made a U-turn on a tax agreement it signed with neighbouring Kenya in December 2019, saying it needs the revenue to meet its annual budget.
Uganda had previously agreed to abolish 12% duty on Kenyan-manufactured fruit juices and also removed 12% verification fee on the country’s pharmaceutical exports.
Kenya says that the tax makes Kenyan-made goods more expensive in Uganda, adding that the unilateral tax by an EAC partner state is in breach of the Customs Union protocol.
The Uganda Revenue Authority (URA) seeks to raise a total of $5.43bln in domestic taxes to finance part of the $12.23bln budget for the 2020/2021 fiscal year.
As part of the agreement that was signed in Kampala by Kenyan trade officials led by the then Principal Secretary in the Ministry of Trade Chris Kiptoo and his Ugandan counterpart Grace Choda, Uganda had committed to abolish the contentious taxes by June 30 this year, and to provide an advance progress report on March 31, 2020.
In return, Kenya committed to lift the ban on exports of poultry products to Uganda that was imposed on February 14 last year, and also to increase market access for Ugandan sugar to 90,000 tonnes from 30,000 tonnes, subject to verification by Kenya in February 2020.
Kenya also lifted a long-standing ban on export of beef and beef products to Uganda.
The two countries also agreed that Kenya imposes 16 per cent VAT to control influx of Ugandan milk into the Kenyan market and protect local dairy farmers.
At the recent meeting of the EAC Sectoral Council of the ministers of Trade, Industry, Investment and Finance (SCTIFI), Uganda said that juice and pharmaceutical taxes is a “revenue issue” and that abolishing them would lead to loss of revenue to the Ugandan government.
Uganda said it intended to resolve the issue in June next year. Kenya requested Uganda to consider exempting its juices and pharmaceuticals from duty while awaiting resolution of the matter, but its request was turned down.
Uganda had introduced the discriminative excise duty on Kenyan juice and verification fees on pharmaceuticals under the Excise Duty Amendment Act 2017.