EAC affairs PS urges parliament to amend tax laws to align with EAC partner states

The State Department for East African Community (EAC) Affairs has urged the National Assembly to fast-track amendments to Kenya’s tax laws to align them with regional frameworks, warning that failure to do so could trigger retaliatory trade measures from neighbouring countries.

Appearing before the National Assembly’s Departmental Committee on Finance and National Planning, Principal Secretary for EAC Affairs, Caroline Karugu, cautioned that certain provisions in the proposed Finance Bill, 2026 could undermine regional integration efforts and expose Kenyan exports to punitive measures from partner states.

At the center of the State Department’s concerns is the classification of goods traded within the East African Community. Under Kenya’s current Excise Duty Act, goods entering the country from foreign countries, special economic zones, or export processing zones are categorized as imports.

However, the PS noted that this definition conflicts with the provisions of the East African Community Customs Management Act, 2004, which defines imports as goods originating from countries outside the regional bloc and classifies goods moving between partner states as transfers.

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Dr. Karugu told lawmakers that treating goods from EAC partner states as imports allows them to attract higher excise duty rates than locally produced goods, a practice that has been criticized as discriminatory and a major contributor to non-tariff barriers within the region.

She emphasized that Article 8(4) of the Treaty for the Establishment of the East African Community grants precedence to Community laws over national legislation in matters of implementation, and urged Parliament to adopt the regional definition in domestic tax laws.

The PS expressed concern that the proposed reclassification was omitted from the Finance Bill, 2026, warning that the move could jeopardize Kenya’s access to a market that accounts for more than 29 percent of the country’s annual exports.

Dr. Karugu further warned that proposed changes affecting excise duty exemptions for goods originating from EAC member states could lead to significant diplomatic and economic consequences for Kenya.

She called on lawmakers to amend the Excise Duty Act to classify goods from partner states as transfers rather than imports, arguing that the distinction carries major implications for regional trade competitiveness.

The PS also highlighted the potential impact on the Port of Mombasa, noting that competing regional trade routes are gaining ground.

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According to her submissions, the Port of Dar es Salaam has been increasing its share of regional cargo traffic by approximately seven percent annually, while Kenya’s Northern Corridor has been losing about ten percent.

She argued that maintaining the current classification would expose Kenyan importers to additional excise costs, encouraging them to reroute cargo through Tanzania and weakening Kenya’s position as a regional trade hub.

“Kenya will be the country that loses because we are the greatest beneficiaries of the East African Community,” Dr. Karugu told the Committee.

Members of the Finance and National Planning Committee, led by Chairperson Kuria Kimani, acknowledged the concerns but questioned whether Kenya’s openness within the regional bloc had been matched by similar commitments from other partner states.

The Committee is expected to consider the State Department’s recommendations as it reviews the Finance Bill, 2026 before presenting its report to the National Assembly.

By Obegi Malack

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