
Cross border cargo trucks transport goods from Tanzania to Rwanda.
The East African Community (EAC) member states have agreed to impose specific tariffs on lubricating oils, aluminium bars and active yeast, which they have identified as ‘high risk’, to prevent potential revenue losses through under-invoicing and undervaluation by unscrupulous cross-border traders.
The EAC Sectoral Council on Trade, Industry, Finance and Investment (SCTIFI) at a meeting held in Arusha in November last year, directed that the new rates, which have already been forwarded to the Council of Ministers for adoption, take effect from July 1, 2025 to address the trade malpractices that are costing the region millions of dollars in revenue.
At its 45th meeting, SCTIFI adopted $0.46 per litre as a specific duty rate on lubricating oils, which will result in a duty of 25 percent or $0.46 per litre, whichever is higher, and $700 per metric tonne as a specific duty rate on active yeast, which will result in a duty of 25 percent or $700 per metric tonne, whichever is higher.
It also set the specific duty rate on aluminium bars, rods and profiles at $690 per tonne, resulting in a duty of 25 percent or $ 690 per metric tonne, whichever is higher.
The imposition of these duties comes after the regional finance ministers, during the pre-budget consultations in Arusha in May 2023, considered and directed member states and the EAC Secretariat to identify high-risk products and assign a specific duty rate to address issues related to under-invoicing and undervaluation.
Consequently, EAC customs valuation experts met in Kigali, Rwanda in September last year where they considered the identification of high-risk items and the analysis to determine the appropriate specific duty to be applied to address under-invoicing and undervaluation.
“In implementing the directive by the Ministers/Cabinet Secretary, the experts identified lubricants in liquid form (engine oil), active yeast, and aluminium bars, rods and profiles as high risk and recommended imposing a specific duty rate to safeguard revenue,” says the report of the SCTIFI meeting held in Arusha.
Illicit financial outflows
Customs valuation is a major feature and concern of modern customs tariff systems, as it is important for assessment of customs duties for purposes of generating revenues or as a means of encouraging and protecting domestic industries.
Trade misinvoicing is a method for illegally moving money across borders that involves the deliberate falsification of the value, volume, and/or type of commodity in an international commercial transaction of goods or services by at least one party to the transaction.
Trade misinvoicing is the largest component of illicit financial outflows measured by the Global Financial Integrity (GFI), a US-based think tank that focuses on illicit financial flows, corruption, illicit trade and money laundering.
By fraudulently manipulating the price, quantity or quality of a good or service on an invoice submitted to customs, criminals can easily and quickly move substantial sums of money across international borders.
For example, in 2020 GFI disclosed that Uganda, Kenya and Tanzania had been losing $926 million annually in domestic tax and tariff revenue as a result of illicit outflows of capital through trade misinvoicing, a trade malpractice that had been occurring for 10 consecutive years.
A specific duty is tax or tariff imposed by a government on imported goods that are deemed to be of a specific type or from a specific country aimed at protecting domestic industries from foreign competition and generating revenues for the government.
This levy is not related to the value of the imported goods but to things such as weight and volume of the goods.
It stipulates how many units of currency are to be levied per unit of quantity.
Under the EAC revised four band Common External tariff (CET) structure that came into force on July 1, 2022, finished goods coming into the region attracts a high tariff of 35 percent compared with 25 percent under the original three-band tariff structure that came into effect on January 1, 2005.
Under the new four-band tariff structure, raw materials and capital goods attract zero percent import duty, intermediate products not available in the EAC region (10 percent), intermediate products available in the EAC region (25 percent) and 35 percent duty on imported finished products.
In addition, there is a list of sensitive items such as sugar, wheat, rice and milk, which attract higher duty of above 35 per cent to protect local industries from competition.
Initially, under the EAC’s three-band tariff structure, finished goods imported into the regional bloc attracted a duty of 25 percent, intermediate goods (10 percent) and raw materials (zero percent).