Civil society organisations have launched a campaign to reform the East African Community’s (EAC) Double Taxation Agreement, arguing that the existing framework no longer adequately addresses the region’s changing political and economic realities.
The organisations say the agreement needs to be updated to reflect the expansion of the community from five to eight partner states, differences in their levels of economic development and emerging challenges in taxing multinational and digital businesses.
The EAC Multilateral Agreement for the Avoidance of Double Taxation is intended to prevent income from being taxed in more than one partner state without creating opportunities for non-taxation or reduced taxation through tax evasion and tax avoidance.
However, Jane Nalunga, the Executive Director of the Southern and Eastern Trade, Information and Negotiations Institute (SEATINI) Uganda, says the existing framework does not adequately address the region’s current tax challenges.
Nalunga argues that while businesses need protection against being taxed twice on the same income, the rules should not allow multinational companies to exploit differences between national tax systems to avoid their tax obligations.
She says the agreement needs to be reviewed to ensure that its provisions serve both investors and the countries in which they operate.
A double taxation agreement establishes how two or more countries allocate taxing rights over income, profits, and other earnings that may fall under their respective tax jurisdictions. It also provides mechanisms for relieving double taxation, such as tax credits or exemptions.
Such agreements are intended to facilitate cross-border trade and investment by reducing uncertainty over tax obligations. However, civil society organisations argue that poorly designed provisions can also create opportunities for companies to shift profits or exploit differences in national tax laws.
The EAC agreement was signed by the five partner states that constituted the community at the time.
Uganda, Kenya and Rwanda ratified it, while Burundi and Tanzania did not. Under the agreement’s provisions, it could not enter into force until all the signatories had ratified it.
Campaigners say the failure to bring the agreement into force presents an opportunity to revise its provisions and address weaknesses before it becomes operational.
They argue that reforming the framework now could avoid the more complicated process of changing domestic ratification laws after implementation.
One of the concerns the proposed reforms seek to address is tax competition among partner states, often described as a “race to the bottom”.
This occurs when countries compete to attract foreign investment by offering tax incentives or reducing their effective tax burdens, potentially eroding the revenue available to finance public services.
Aloysius Kittengo, a tax policy analyst, says the review should reconsider the treaty’s permanent establishment provisions, which determine when a foreign company has a sufficient presence in a country to be taxed there on the profits attributable to that presence.
Kittengo argues that the rules can create opportunities for companies, particularly those in construction and extractive industries, to structure their operations to avoid meeting the threshold for taxation in the host country.
He says the six-month period provided for under the relevant provisions can be exploited by companies that complete or organise their activities within a shorter period, leaving the country without taxing profits generated from their operations.
The permanent establishment rules are important because a foreign company may generate income from activities in a country without being incorporated or resident there.
Whether the country can tax the profits depends on the applicable treaty provisions and domestic tax laws.
Civil society organisations want the revised agreement to close potential loopholes while preserving legitimate protections against double taxation.
The EAC’s tax framework draws on the Organisation for Economic Co-operation and Development (OECD) Model Tax Convention, which provides a basis for countries negotiating tax treaties. Such conventions seek to allocate taxing rights between jurisdictions, facilitate cross-border investment and promote cooperation against tax evasion.
The EAC has pursued regional cooperation on double taxation since the early years of its integration process. Kenya, Uganda and Tanzania developed an initial tripartite arrangement in 1997. In 2010, the framework was updated through a comprehensive agreement intended to avoid double taxation and prevent fiscal evasion with respect to taxes on income.
However, campaigners say a uniform regional framework must also account for differences in economic strength, investment needs and the capacity of partner states to collect taxes.
Kennedy Aluma, head of the Uganda Parliamentary Network on Illicit Financial Flows and Tax Justice (UPNIFFT), says the review should consider the unequal economic circumstances of partner states and ensure that the treaty does not undermine their ability to mobilise domestic revenue.
Aluma argues that provisions designed to accommodate these differences could help prevent illicit financial flows and ensure that countries retain an appropriate share of the tax revenue generated within their borders.
Sophie Nampewo Njuba, the Finance for Development and Economic Justice Coordinator at Oxfam Uganda, says the review should also address the implications of individual EAC partner states entering into separate tax agreements with countries or regional blocs outside the community.
She argues that bilateral arrangements negotiated independently by member states could undermine the objectives of regional integration if they grant external partners different tax treatment or weaken the community’s collective bargaining position.
Njuba says the revised framework should help partner states coordinate their tax policies and negotiate with external partners from a stronger, more unified position.
The campaigners say a reformed agreement should balance the need to attract investment with the protection of domestic tax revenues, particularly as the EAC seeks to deepen economic integration and expand cross-border business.
They argue that clear and coordinated rules would help businesses avoid double taxation while reducing opportunities for tax avoidance, profit shifting and the erosion of the tax bases of individual partner states-URN. Give us feedback on this story through our email: kamwokyatimes@gmail.com
