AFRICA: Uniform Import Tax for African Countries in 2017 – What This Means
Recent Western Cape Business News
The African Union (AU) last month adopted a new import levy financing mechanism. The import levy will take effect from 2017 and will generate funds for the African continent’s activities. The AU decided to self-fund a significant part of its peace-keeping operations and development projects (including transport, energy, water and telecommunication services on the continent). Initially, all countries will levy 0.2% on “eligible” imports (i.e. non-service imports, and excluding imports such as medicines, drugs, baby food and fertilizers). The levy will be collected by African revenue authorities and deposited into the central bank of Member States. The ultimate goal is to generate US$1.2 billion writes Alison Van Den Berg.
As a result, from 2017 the landed cost of imported goods (inputs or finished goods for re-sale) will increase by 0.2%. For businesses already battling to achieve sufficient margins, this may sound like bad news as this will be another contributing factor to the ever-increasing costs of doing business in Africa. There is, however, reason to celebrate the decision if one understands the AU’s broader goals, and how support will contribute to growth in Africa. The import tax will partly enable the AU to make its own decisions relating to African Internal matters without the traditional interference from donor countries through donor funding conditions. The AU’s “Agenda 2063” is a strategic framework for the socio-economic transformation of the continent over the next 50 years. It builds on, and seeks to accelerate the implementation of past and existing continental initiatives for sustainable growth and development.
The AU’s Strategic Plan of 2014-2017 fast-tracks the continental economic integration process by establishing a Continental Free Trade Area and recognizing the need to boost intra-African trade. The concept of “economic integration” refers to the unification of economic policies between different States through reduction or abolition of tariff and non-tariff restrictions on trade. This, in turn, should lead to lower distributor and consumer prices and increase the level of welfare, whilst increasing economic productivity. The degree of economic integration between States can be categorized into 7 stages:
1. Preferential Trading Area – reduced barriers granted by one State to another;
2. Free Trade Area (“FTA”) – when States abolish customs tariffs on their shared inner borders;
3. Customs Union – as above but then also introduces common external tariffs on the exterior borders of the union (e.g. as for SACU between South Africa, Botswana, Lesotho, Namibia, Swaziland);
4. Common Market – an FTA plus the free movement of services, capital and labour;
5. Economic Union – customs union combined with common market;
6. Economic and Monetary Union – monetary union introduces a shared currency
7. Complete economic integration
The purpose of the Continental Free Trade Area (“CFTA”) in Africa is- to:
ï§ create a single continental market for goods and services, with free movement of business persons and investments, to pave the way for accelerating the establishment of the African Customs Union.
ï§ expand intra-African trade through better harmonization and coordination of trade liberalization and facilitation regimes and instruments across Africa.
ï§ enhance competitiveness at the industry and enterprise level through exploiting opportunities for scale production, continental market access and better reallocation of resources.
The CFTA will combine 54 African countries with a combined population of more than one billion people and a gross domestic product of more than US $3.4 trillion. The implementation of the 0.2% import levy will be a valuable test in administrative co-operation between members. If successful, it will allow the AU to independently implement infrastructural improvements aimed at boosting intra-African trade, and moving towards achieving long term integration.
The AU will probably closely monitor the recent BREXIT fall-out and EU lessons learned, but hopefully these initiatives will contribute to a promising future for the continent.
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