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Ghana, Rwanda and Kenya introduce 0.2% import tax to fund African Union

Ghana, Rwanda and Kenya introduce 0.2% import tax to fund African Union Featured

Ghana, Rwanda and Kenya appear to have taken the lead among the African Union’s 54-member states to start the process of generating revenue internally to fund the operations of the African Union Commission (AUC).

Ghana’s Cabinet has approved a new tax on imports announced by the President, Nana Akufo-Addo over the weekend, President Paul Kagame of Uganda passed a new law that places a 0.2 per cent levy on

imported goods in February 2017 and Kenya announced the Levy way back in July 2016.

Financing of the AU

The AU for years, has been reliant on foreign donors to fund its day-to-day operations and activities. The situation while it puts the AU in a difficult position, also creates an awkward situation that effectively makes the AU cede its sovereignty to other forces, particularly in the West.

More than 60 per cent of the AU’s financing is borne by Western countries and organisations, and while member countries are slow in paying their dues, the West doesn’t always fulfill its pledges to the AU.

And according to the AU, its budget continues to be underfunded by both the member states and development partners. 

“On average, 67 per cent of assessed contribution is collected annually from member states. About 30 member states default either partially or completely on average, annually. This creates a significant funding gap between planned budget and actual funding, which hinders effective delivery of the African Union’s agenda,” the AU says on its website.

In response to the funding gap, a new mechanism to fund the AU was proposed by Donald Kaberuka, the former President of the African Development Bank, who has been appointed the AU High Representative for the Peace Fund.

Kaberuka’s proposal, which has been adopted by the AU Assembly, entails a 0.2 per cent import levy on all eligible imports entering the continent, to fund the AU.

The AU expects to generate $1.2 billion in 2017 from this levy.

The 0.2% levy

The AU says before settling on the 0.2 per cent levy, working in close collaboration with the United Nations Economic Commission for Africa undertook several simulations with different sources of funding in line with the original proposal from President Obasanjo. Several options were considered. These include surcharge on SMS, hospitality levy for hotels stays, levy on all air tickets to and from Africa and a basket of others including the levy on imports. 

The 0.2 per cent levy to be imposed on imports from outside AU member states came out as the most viable in the sense that it was doable, equitable in the sense that the rate was the same across all the countries, sustainable in the sense that it would be available over the short medium to long term, predictable in the sense that one could assess the expected inflows from existing national data and also the it could expect to receive funding on time once the scheme sets in, the AU adds.

How it all started

It appears that following some reflections over a period of time, and after several decisions have been taken, a High Level Panel on Alternative Sources of Financing headed by former President Obasanjo of Nigeria was established. The AU noted that the work of this Panel informed the development of concrete recommendations by a working group of the Conference of African Ministers of Economy and Finance held in Washington in 2014. These recommendations were endorsed in subsequent decisions of the assembly, the AU says.

In June 2015, the Assembly adopted a decision on Financing of the African Union in Johannesburg, South Africa. Later in September 2015 the Meeting of the Peace and Security Council at the Level of Heads of State and Government requested the Chairperson of the Commission to appoint a High Representative on the Peace Fund. Dr. Donald Kaberuka was appointed a High Representative on the Peace Fund.

After the January 2016, 26th Ordinary Session of the Assembly of Heads of State and Government in Addis Ababa, the Heads decided on the following, that: The Executive Council through its Committee on Contributions and Scale of Assessment to continue to develop modalities for the implementation of the Alternative Sources of Financing the African Union and report on progress to the next Ordinary Session of the Assembly in July 2016; The AU Commission should convene a Retreat of Heads of State and Government, Ministers of Foreign Affairs and Ministers of Finance, to examine the financing of the Union before the July 2016 Summit. 

Then in July 2016 the Assembly of Heads of State and Government adopted the Decision directing all African Union Member States to implement a 0.2 per cent levy on eligible imports to finance the African Union.

“The import levy will fund ‘the AU’s operating, programme and peace and security operations budget’. It should contribute $325 million to the Peace Fund in 2017, rising to $400 million in 2020, while the remainder will fund the AU’s general budget,” the organization says.

The AU believes that the new mechanism when fully implemented across the continent will provide reliable and predictable funding for continental peace and security through the Peace Fund; provide an equitable and predictable source of financing for the Union; reduce dependency on partner funds for implementation of continental development and integration programs; and relieve the pressure on national treasuries with respect to meeting national obligations for payment of assessed contributions of the Union.

Other countries

The other countries said to be at the early stages of the law are, Chad, Ethiopia and the Congo Republic.

Apart from the three countries, Ghana, Rwanda and Kenya, it is not known yet if the other countries have reached significant decision points in that direction.

Additional Info

  • Origin: ghanabusinessnews/GhAgent