An East African customs union?

Major Western donors are reportedly pushing for the establishment of a customs union for the East African region, which would make it possible for Ugandan importers to pay their taxes at the Kenyan port of Mombasa. The commissioner in charge of tax policy at Uganda's Ministry of Finance, Planning and Economic Development, Mr Patrick Ocailap, said that The World Bank had approved a study for the establishment of such a union, with a structure similar to that of the South African Customs Union (SACU).

The commissioner said that the concept of Ugandan importers paying their taxes at the Kenyan port had been under discussion since April last year, but that its implementation would not be possible before certain issues, such as the convertibility of the Kenyan shilling, were sorted out.

He asked: "For example, Uganda operates a cash budget and if Kenya collects the taxes and remits the money at a loss because of differences in exchange rates, who will bear the loss? And in case of a disagreement, who does the arbitration?" The commissioner also said that collecting taxes at Mombasa would go a long way towards curbing smuggling and the diversion of transit goods. He refused however to speculate on exactly when the new system is likely to be in place.

Items such as oil, fuel and cigarettes are most pone to smuggling. Industry estimates put the government's annual revenue losses through cigarette smuggling at between Ushs9bn ($7.5m) and Ushs12bn ($10m). Lower tax rates in both Kenya and Tanzania have led to increased cigarette smuggling, as smugglers are able to sell their products in Uganda at half the price. Over 50% of the retail price of every cigarette is paid to the government in taxes.

The smuggling of uncustomed goods has been a regional problem for years. Since the setting up of the East African Cooperation in 1966 revenue authorities from the three countries have been looking into ways and means of tackling the problem jointly. Most recently, a series of joint meetings have been held in the last year or so to exchange information on the harmonisation of taxes and tariffs and the collection of import duties.

Uganda

Being a landlocked country and depending heavily on the Mombasa port for imports and exports, Uganda experiences the highest levels of smuggling in the region. Observers say smuggling intensified when the Uganda Anti-Smuggling Unit was disbanded in mid-1996. Until the formation of the new Revenue Protection Service (RPS) in November last year, smuggling increased significantly. The Ugandan Minister for Finance, Planning and Economic Development, Mr Gerald Sendaula, recently conceded in an interview that the government was losing billions through smuggling.

Tanzania

Meanwhile the high cost of oil products in Tanzania has spurred a booming illegal trade in petrol, paraffin and diesel from the country's southern border with Malawi. Reports says the Tanzanians living along the river Songwe, which marks the border between the two countries, can be seen paddling back and forth with contrabands to nourish the lucrative market. The illegal trade is centred mainly in the border town of Kyela in the Mbeya region.

Vendors of fuel get large profit margins even though they sell their smuggled kerosine at prices much lower than those that are found in the rest of the country. Petroleum products are bought mainly at filling stations at the Lake Nyasa port of Karonga in Malawi, some 45km from the border, and at the Chirumba jetty, where the products are even cheaper. The price per litre of kerosine at the jetty, for example, is $0.14 compared to $0.64 in Tanzania. Vendors of smuggled petrol at Kyela have disclosed that although their prices are higher compared with those in Malawi, they are still cheaper and thus more popular than prevailing prices in Tanzania, where a litre of petrol in Kyela sells for Tshs485-495 ($0.72-0.73).

The business is so lucrative that petty * traders who venture into it with as little as a $30 stake can make handsome returns. "In the past, we used to pass through the customs border post and pay taxes on the petroleum products.

However, Tanzania Revenue Authority officials are now seizing these products, forcing us to resort to the use of canoes across the river Songwe," remarked one of the vendors.

* The East African Finance Ministers recently met in Arusha to map out strategies for the eradication of smuggling. Simeon Nyachae of Kenya, Daniel Yonda of Tanzania and Sam Kuteza of Uganda, jointly asked the respective revenue authorities to work together to enhance anti-smuggling activities.

It would seem that the era of intra-regional cooperation is fast approaching.