The East African government has announced plans to increase taxes paid by citizens on imported textile between 30 and 35 percent, in order to protect and enhance the textile industry. The regional tax reforms will also attract higher taxes to products such as iron, steel, wood and wood products that are imported into the country.
Regional private sector businesses are demanding a 32.5 percent duty on finished products in protecting local industries, and the proposal will be presented at the next East African Community Heads of State summit for consideration.
In review of the EAC Common External Tariff (CET), member states have agreed to move from a three-band structure to a new tariff structure of four bands but have failed to agree on the rates to be imposed on goods in the new band.
EAC’s three-band tariff structure came into effect on January 1, 2005, as finished goods imported into the regional bloc attracted a duty fee of 25 percent, intermediate goods 10 percent, and a duty-free on raw materials.
Sensitive items such as sugar, wheat, rice and milk attract a higher duty of above 25 per cent to protect local industries from competition. Recent development shows that imported second-hand clothes will now be classified as “sensitive”, and attract duty higher than finished products.
The new four-band tariff structure will include a duty-free import tariff on raw materials and capital goods, 10 per cent import duty for intermediate products not available in the EAC, and 25 per cent import duty for intermediate products available in the region. The East African Business Council (EABC), the region’s top organ for private sector business associations, proposed a fourth band, with a rate of 32.5 per cent for finished products
However, partner states have disagreed on the rate for the highest band, which will be either 30 per cent or 35 per cent for finished products. “Under the CET there is a need to have the fourth band. We are considering having either 30 per cent or 35 per cent for the fourth band,” said Peter Mathuki, EABC executive director.
In February a meeting was held in Zanzibar, EAC member states submitted 1,294 products for consideration to pay above the rate of 25 per cent. Of these, there was consensus on 327 tariff lines and an agreement to retain 566 products at their current rate. However, there was no agreement on 401 tariff lines, which remain under consideration.
According to a study by the United State (U.S) Agency for International Development, the U.S supplies approximately 20 percent of total direct exports of used clothing to the EAC, while Chinese exports of cheap, ready-made clothes to East Africa is estimated at $1.2 billion per annum
However, the initiative has been greeted with mixed reactions. While some buyers welcome the idea of buying locally made attires, others are discouraged due to the high price of locally made textile compared to imported used clothes.
Thus, the EAC and its member states have been making efforts in reviving the textile industry, using various initiatives. The EAC introduced special fashion days and weeks in the region. Fridays have been declared Afrika Mashariki (EAST) Fashion Day, during which the people in member countries will wear attires made in the region.
Also, EAC member states in 2017 agreed to grant garments and textiles manufacturers a three-year waiver of duties and value-added tax (VAT) on inputs, fabrics, and accessories not accessible in the region.
In February, EAC confirmed plans to develop a strong textile and leather sector in the region. Member states as well are determined to offer citizens competitive options in regional textiles and footwear.
Tanzania’s Deputy Minister of Agriculture, Mary Mwanjelwa, earlier this year disclosed have a potential trade valued at $3 billion by 2025.plans to boost the country’s cotton exports to $150 million by 2020, up from the current $30 million.
Last month, Uganda unveiled a strategy for the cotton, textiles and apparel sector with the aim of increasing fibre cotton production, scaling up domestic value addition and creating employment. The scheme supports its third edition of the National Development Plan (NDPIII).
The collective policies and efforts by the EAC governments are based on the potential of the textile sector. A recent study by the EAC Secretariat on cotton, textile and apparel value chains revealed that the sector could become a major player in the regional industry and will be valued at $3 billion by 2025.
By Faith Ikade / Ventures Africa