Rwanda is now a member of the East African Community (EAC). This has got implications for the Rwanda Customs administration, which is a member of the East African Community Customs Union (EAC CU).

1. Structural Implication

Currently the policy that manages the customs administration is drawn by the Ministry of Finance and Economic Planning and administered by the directorate of Customs of the Revenue Authority. This therefore enables government to flexibly articulate different socio economic programs based on identified priorities. However, under the EAC Customs Union:

Policy Development

General Powers of the Minister on customs issues including granting remissions will be exercised by the EAC Council of Ministers. For instance, the current exemption of generators, Industrial inputs which was granted through a Ministerial Order shall not be possible under the EAC CU. This implies that Rwanda will have to articulate policies of interest and market them to other Partner States.’s within Partner States.

Processes and Procedures

The internal processes and procedures will have to be adjusted to reflect the legal changes. e.g. Computer programs and administrative paper work. This implies that a total overhaul of Customs paper work shall be replaced by EAC documents, training of staff and all stakeholders particularly Customs Clearing Agents to enable the latter to compete in the Region.

2. Revenue Implication

The fundamental principal of a Customs Union is that national borders are “replaced” by the Customs Union borders. Therefore elimination of internal duties is paramount. It should be noted that only import duties are targeted. Therefore, accession to the EAC CU has revenue implications which include among others:

The Tariffs

There are two types of tariffs in the administration of a Customs Union:

Internal tariffs:

These are tariffs imposed on goods originating from the Partner States and fulfilling the conditionality stipulated under EAC Rules of Origin. It is expected that these tariffs are eliminated on accession to promote trade within Partner States. It should be noted that Rwanda is at different stages of liberalizing trade with different Partner States under COMESA:

(i) Qualifying imports from Uganda enjoy a reduction of up to 80%;
This implies that the tariffs to be eliminated only relate to imports from Tanzania and Uganda who under EAC CU shall enjoy a reduction up to 80% as agreed in the previous negotiations and in accordance with the WTO requirements on treatment of Partner States.

The EAC has agreed that all these internal tariffs shall have been eliminated by 2009.

External Tariffs

In a Customs Union a Common External Tariff (CET), applies to all other countries outside the Union.
Therefore, application of the EAC legal instruments involves the adoption of the EAC Common External Tariff (EAC CET).

Band Structures

Revenue loss is expected from application of the EAC Common External Tariff (CET) which is a three band structure while Rwanda’s tariff structure is a four band. Below is a table illustrating the tariff structure?

Product Rwanda EAC
Raw Materials 0% 0%
Capital 0% 0%
Intermediate 15% 10%
Finished 30% 25%

Most affected products

Some products that earn significant revenue will be taxed at a lower import duty rate. These include among others;

  • Petroleum products contributing a loss of approximately 6.4 billion due to a shift from 30% under the national tariff to 0% EAC CET;
  • Tyres from 30% to 25%;
  • Vehicles from 30% to 25%;
  • Electric Generators from 30% to 0%.

Computation of duties

Another loss is expected from computation of duties and taxes based on CIF (Cost, Insurance and Freight) based on the port of first entry into the community instead of CIF Kigali, and elimination of freight costs in computation of duties on goods imported by air. This is specific to the freight costs because the national borders will be replaced by the borders of the EAC CU.

  • The very initial estimates on the revenue loss are 9.109 billion as per the 2005 customs data. These are raw calculations yet to be finalized.

3. Mitigating factors to Revenue Loss

The following are mitigating factors to revenue loss;

  • Trade volumes will increase and therefore yield more domestic taxes due to increased consumption levels as a result of reduced transport costs and elimination of customs duties;
  • Expansion of the excise base and increasing excise duties on some highly affected products under the CET e.g. Petroleum products.
  • Reduced scope of exemption will yield some revenue.

Considering that there are plans to negotiate for special treatment of some selected products of socio- economic importance to Rwanda and the above mitigating factors, the revenue loss if any, should be minimal.

4. Legal Implications

After joining the EAC CU, Rwanda is adopting legal instruments of the EAC CU, and negotiating a transition period amongst other issues. Major changes expected are:

Customs Laws

Customs laws of the EAC CU apply uniformly in the Community and take precedence over the Partner States’ laws. The implications here are that the current Customs Law and the national Customs Tariff Code will be replaced by the EAC Management Act and the EAC Common External Tariff respectively.
The other laws that will partially be affected include: - the VAT law (VAT on imports), and the Investment Code. Lastly, the law providing for a Special Tax on Sugar shall be abrogated as it is considered as discriminatory.

Single Membership in a Customs Union

As stipulated under the WTO agreement, a member state can only belong to one Customs Union. In this case, Rwanda’s joining the EAC CU, means she can’t join another Customs Union e.g COMESA. However, EAC as a bloc can negotiate trade arrangements with other Economic Communities.

Appeals process

The EAC Management Act requires each Partner State to establish a tax appeals tribunal which will replace the existing appeals system, which ends with the Finance Minister

Copyrights © 2022 All Rights Reserved by Rwanda Revenue Authority.

Thanks for your Feedback!

If you feedback requires a response, we'll be in touch shortly