Revenue authorities from the East African Community (EAC) member states are exploring the establishment of a single intelligence and surveillance unit. This proposal was discussed at the 52nd East African Revenue Authorities Commissioners General (EARACGs) meeting held in Nairobi, where regional tax commissioners agreed that a unified approach to intelligence gathering and sharing could help tackle the persistent issue of smuggling that continues to drain vital tax revenues.
The 52nd EARACG meeting, attended by revenue commissioner generals from Kenya, Tanzania, Uganda, Rwanda, Burundi, the Democratic Republic of Congo (DRC), South Sudan, Somalia, Zanzibar, and Malawi, acknowledged the serious implications of smuggling on the region’s economic performance. Despite a robust regional growth rate of 5.8% in real terms, or 14.5% in nominal terms, in the 2023/2024 fiscal year, tax revenues grew by only 13.3%. This discrepancy highlights the inefficiencies in tax collection mechanisms and the challenge of keeping pace with regional economic growth.
Smuggling, which remains one of the major contributors to tax revenue loss, has become an increasingly difficult problem for East African economies. According to the EARACG, between October 2023 and April 2024, investigations into tax evasion led to the recovery of Ksh 392 million ($3.04 million). However, this amount is still a fraction of the potential revenue lost to illicit activities across the region.
To address these challenges, the commissioners called for the establishment of a Joint Intelligence and Surveillance Fusion Centre. This would enable EAC countries to pool resources, share intelligence on cross-border smuggling activities, and monitor suspicious trade practices more effectively. The center would focus on consolidating efforts in tackling smuggling, which not only threatens fiscal policies but also undermines societal safety by fostering a black market for contraband goods.
The urgency for this collaboration is further underscored by the findings of the Tax Transparency in Africa 2022 report by the Global Forum, which estimates that African countries lose between $50 billion and $80 billion annually due to illicit financial flows, largely through porous borders. The lack of effective cross-border monitoring and enforcement mechanisms has created an environment ripe for tax evasion and smuggling, which erodes the tax base and stifles sustainable economic growth.
At the meeting, the commissioners also highlighted the need for policy reforms, including the acceleration of tax harmonization across EAC member states. This includes establishing uniform valuation systems, improving enforcement strategies, and enhancing information sharing on exports, all of which would help standardize tax collection and close loopholes exploited by smugglers.
Another key recommendation was the rationalization of tax expenditures, especially in regard to tax exemptions. The commissioners agreed to push for common benchmarking to address the revenue lost due to these exemptions. Furthermore, they emphasized the importance of exploring new technologies, including the use of Artificial Intelligence (AI) in revenue administration, to better track taxpayer transactions and detect irregularities.
The EAC revenue authorities also discussed the need for the adoption of the “significant economic presence” taxation framework, which targets the digital economy. This would ensure that tax laws evolve alongside the rapid growth of digital businesses in the region. Implementing these reforms is crucial to ensure that the digital economy contributes its fair share to national tax coffers.
In terms of operationalizing the EAC Multilateral Double Taxation Agreement (DTA), the commissioners agreed on the importance of fast-tracking its ratification to facilitate smoother cross-border trade and reduce the risk of double taxation.
As part of the ongoing efforts to streamline tax systems within the region, the commissioners also committed to speeding up the development of a common domestic tax system using internal expertise, while considering the costs involved. This collaborative approach aims to create a more efficient, transparent, and robust tax collection system across the EAC, ultimately benefiting both the region’s economies and its citizens.
In conclusion, the creation of a Joint Intelligence and Surveillance Fusion Centre, along with tax harmonization and the adoption of innovative technologies, is seen as a crucial step toward enhancing revenue collection in East Africa. These initiatives, if successfully implemented, could go a long way in addressing the region’s tax evasion challenges, improving public safety, and ensuring a more equitable distribution of the economic benefits of growth.
