Higher corporate taxes in Kenya, Uganda and Tanzania make Rwanda the destination of choice for investors

While Tanzania, Kenya, and Uganda share a common corporate tax rate of 30 percent just as Rwanda offers a marginally lower rate at 28 percent, experts point out that this difference might influence multinational corporations’ decisions when considering regional headquarters or large investments.

That came to light during the pre-budget webinar organized by the East African Business Council appealing to governments to fast track harmonization of macro-economic goals and domestic taxes in the East African Community.

The recent tax developments and proposed changes in Rwanda’s Financial Bill includes the reduction in the Corporate Income Tax (CIT) rate from 30 percent to 28 percent which will decrease tax burdens for companies, potentially freeing up more capital for investment or expansion.

On withholding taxes Tanzania and Uganda offer simpler structures with a flat rate or a tiered system up to 20 percent while Rwanda’s at 5 percent and 15 percent.

 “Tanzania and Kenya offer lower rates for service or management fees for residents at 5 percent and 15 percent for non-residents, while Uganda’s rates are 6 percent for residents and 15 percent for non-residents,” reveals Adrian Njau the Trade and Policy Advisorat the East African Business Council.

Njau adds that Kenya’s rates are 5 percent for residents and 20 percent for non-residents while Rwanda has a flat rate of 15percent.

The differences are not aligned with the EAC Freedom of Free Movement of Services, as service providers offering cross-border services are treated as non-residents; hence they need to account for different withholding tax rates when pricing their services, impacting intra trade of services and competitiveness.

In terms of VAT on local goods and services, Tanzania has a variable rate of 18 percent on most items, with a reduced rate of 15 percent on certain essential goods.

Uganda and Rwanda both maintain a standard rate of 18 percent, while Kenya has a slightly lower rate of 16 percent.

Excise duties on services become complex in East Africa, Tanzania, Uganda, and Kenya have several rates for various services.

For example, in Tanzania, telcos and payment service providers are subject to a 17 percent rate, while money transfer services are taxed at 10 percent. In Uganda, telcos face a 15 percent rate, while pay-to-view television services are taxed at 5 percent.

Kenya applies a 15 percent rate to telecommunication services and a 20 percent rate to certain financial institution fees and charges. Excise duties on services in Rwanda are generally set at 15 percent, except for telecommunications services, which are taxed at 10 percent.

There is thus a call from experts to ensure alignment with the budgetary cycle in EAC partner States to allow timely engagement for the private sector to effectively advocate for fiscal proposals to improve the trade and investment environment.

The EABC Executive Director, John Bosco Kalisa, EABC appealed to the regional Governments to fast track harmonization of East African Community macro-economic goals and domestic taxes to improve the business predictability, boost intra-EAC trade and investments.