The impact of excise tax harmonization in the East African Community Jodie Posen

East African Community Five countries in East Africa: – Burundi – Kenya – Rwanda – Tanzania – Uganda There is a move towards regional integration (and tax harmonization)

Tax structures in the EAC CountrySystemRatesCommon Currency BurundiAd valorem100% ex works KenyaMixed1,200 KSH per 1000 or 35% of RSP $0.29 per pack (specific) RwandaAd valorem150% of NOT or CIF TanzaniaSpecific tiers8,210 to 35,117 TZS per 1000$0.10 to $0.44 per pack UgandaSpecific tiers22,000 to 55,000 UGS per 1000$0.19 to $0.48 per pack

Recent reforms: Kenya

Recent reforms: Uganda CategoryBeforeAfter Soft cap with greater than 70% local content 22,00032,000 Other soft cap25,00035,000 Hinged lid55,00069,000

Taxes and prices in the EAC

Different tax structures matter

Proposal Any coordination or harmonization requires a common tax structure If coordination and harmonization of prices is recommended, then tax rates also need to be common Tiered systems makes coordination or harmonization close to impossible

Proposal (2) Given that three countries already have a specific tax and a fourth is interested this would be the most appropriate system An initial uniform specific tax at US$0.60 would be appropriate Then uniform specific tax at US$0.60 or 45% RSP

Assumptions Elasticity (-0.6, -0.4 or -0.8) Shifting of taxes (none, +20%, -20% Income changes? (none) Brand market shares

What would this result in? RevenueConsumption Burundi  132%  30% Kenya  52%  18% Rwanda  54%  19% Uganda  112%  22% Tanzania  121%  18%