East African member states have been advised to make critical assessment of single income tax rates.

A law expert, Anatoly Nahayo said recently in Dar es Salaam after launching his book titled “East African Community Tax Harmonisation.”

He said the move will ease allocation of capital shares within EAC member states especially mobile capital.

“Member states should find ways to agree in this matter. Otherwise, it will be difficult to shift to a common market effectively,” he said.

Elaborating, he said, currently, ministers of finance in the member states have been given power to exempt tax and no one has to judge.

He also said the EAC member states should debate on tax harmonisation and put in place laws that will govern it.

He said there are many challenges that need to be addressed so as to create fairness particularly in employment around the bloc whereby workers move from one country to another in search of a job.

There are double charges recorded to the workers moving from one country to the other especially rates charged on pensions and charged in general.

Nahaya explained that if checked, all workers moving to another country within the bloc will be charged the same tax rates.

Nahana further said there is no democracy to protest the decision of finance ministers to exempt individual businessmen or company.

“It’s high time our local experts addressed national issues in the EAC. Currently, there is no tax harmonisation in the regional bloc,” he said.

On April 9, 2011, the East African Community and German Development Cooperation, through the EAC/GTZ Programme on East African Regional Integration, conducted a validation workshop of a study on the Code of Conduct against Harmful Tax Competition and a Model Agreement on Double Taxation Avoidance

According to a statement, the workshop involved senior officials and legal advisors from tax authorities and ministries of finance in the EAC partner states, as well as representatives from the private sector.

“The meeting would review a draft model agreement on double taxation avoidance among EAC partner states and non-EAC countries, plus an EAC code of conduct against harmful tax competition among the partner states,” the EAC statement read in part.

Avoidance of harmful tax competition and double taxation among the member states are both crucial for the success of the common market.

“Therefore, the EAC, supported by the German Development Cooperation, has commissioned an extensive study on the topic which will be discussed by experts from partner states and other stakeholders,” the statement said

The study developed a model agreement on double taxation avoidance, providing a guideline for all partner states when negotiating or updating DTAs with non-member countries.

The study provides an inventory of the existing DTAs between EAC countries and third parties and compares convergences and divergences in areas such as interest royalties, technical and management fees, employment income, and dividends.

It further establishes whether the provisions, especially those on the exchange of information among tax authorities, are in line with international standards.

The study also examines harmful tax regimes, recommends possible counter measures and lists best practices. Examples of harmful tax regimes are low effective tax rates, lack of transparency and lack of information exchange, artificial definition of a tax base, state aid and subsidies, failure to adhere to international transfer pricing guidelines and secrecy provisions, all of which exist within the EAC and therefore give rise to harmful tax competition among the EAC partner states.