COURT JUDGMENT CLARIFIES IMPOSITION OF EXCISE DUTIES AMONG EAC MEMBER STATES
Clarity has been obtained on the legal status of duties and tariffs that members of the East Africa Community unilaterally impose on goods imported from other member states. This follows a recent landmark judgment by the East Africa Court of Justice.
The matter was a suit between British American Tobacco (Uganda) Limited (BAT) and the Attorney General of Uganda.
BAT Uganda is in the business of marketing and distributing BAT-branded cigarettes in Uganda. The cigarettes are sourced from the manufacturer, BAT’s associate company in Kenya.
In 2014, Uganda enacted the Excise Duty Act, No 11 of 2014, which sought to consolidate excise duty matters. In 2017, the Excise Duty (Amendment) Act No. 11 of 2017 (the Amendment Act) was passed, commencing on 1 July 2017. The Amendment Act increased the rate of excise duty on cigarettes (soft cup) to UGX 55,000 per 1,000 sticks for locally manufactured cigarettes and UGX 75,000 per 1 000 sticks for imported cigarettes.
After the amendment, the Uganda Revenue Authority (URA) issued excise duty assessment notices requiring BAT to pay excise duty at the higher rate of UGX 75,000 per 1,000 sticks for its cigarettes manufactured in Kenya and imported to Uganda.
BAT’s case was that the Amendment Act as passed by the Ugandan Parliament and implemented by the URA contravened the provisions of the following treaty and protocols:
- the Treaty of the Establishment of the East African Community (the Treaty);
- the Protocol on the Establishment of the East African Customs Union (the Customs Union Protocol); and
- the Protocol on the Establishment of the East African Community Common Market (the Common Market Protocol).
While the Excise Duty Act defines ‘imports’ to mean goods brought to Uganda from a foreign country, the Treaty and the Customs Union Protocol define imports as goods brought into an EAC partner state from outside the EAC partner states.
BAT therefore argued that the amendment to the Excise Duty Act was illegal and discriminatory and poses a threat to business operations by compelling it to pay exorbitant excise duty on the basis that the cigarettes were manufactured in Kenya. On this ground, BAT sought to have the URA’s acts declared to be in contravention of the Treaty and the Protocols, and the relevant sections of the Excise Duty Act deeming goods manufactured in Kenya as imports declared null and void.
On its part, the Attorney General stated that the Amendment Act was inspired by the need to promote local industries and standardise Ugandan laws with the laws of the other countries in the region. Furthermore, it was enacted to counteract the practice of smuggling tobacco and its adverse effects on locally manufactured cigarettes in Uganda. This was for the benefit of Uganda and the EAC in general.
The East Africa Court of Justice held that the Excise Duty Act as amended by the Amendment Act did not contravene the Treaty or the protocols. However, the Court found that by classifying the cigarettes BAT had imported from Kenya, an EAC partner state, as ‘imported goods’, the URA was contravening and infringing the Treaty, the Customs Union Protocol and the Common Market Protocol.
The Court declared that, in issuing registration slips to BAT for additional taxes, the URA had misapplied the provisions of the Excise Duty Act. This practice was illegal, null and void, according to the Court, which ordered the Attorney General to rescind and withdraw the payment registration slips.
Further, the Court ordered the Attorney General to ensure that it interprets and applies the Amendment Act in compliance with applicable EAC Community law and to align the Ugandan tax laws with EAC Community law applicable to goods from EAC partner states.
Putting it into Perspective
This is a critical judgment, especially coming at a time when some of the states in the EAC have sought to unilaterally impose duties and taxes on goods produced by other community states. This has been the case especially with Tanzania and Uganda when dealing with Kenyan goods. The result has been trade disputes and impasses, which are yet to be resolved despite negotiations between the leaderships of the community states.
It remains to be seen whether the judgment will help eliminate or reduce the trade disputes sparked by imposition of unilateral duties and tariffs. Nevertheless, the judgment makes it clear that the unilateral levies and taxes applied by the member states are illegal and that national laws must be construed in light of treaty provisions.
On balance, the judgment is fair and, if accepted by member states, should bring relief to intra-EAC trade – a key requirement for a successful community.
For any queries or further assistance, please contact Nikhil Hira, Alex Mathini or your relationship Partner at Bowmans Kenya.