Study to Determine an Appropriate De Minimis Threshold for EAC Partner States
The East African Community (EAC) is the regional intergovernmental organization of the Republics of Kenya, Uganda, Burundi, Rwanda, Tanzania and South Sudan, with its Headquarters located in Arusha, Tanzania. The Community seeks to widen and deepen integration through four defined pillars namely Customs Union (CU), Common Market (CM, Monetary Union (MU) and Political Federation (PF).
One of the key components in the first two pillars of integration is trade facilitation. It allows free movement of goods and cross-border trade in the EAC region, for both high and low value goods. Although the EAC Partner States have made major steps towards improving trade facilitation, there is still some challenges including those related to low value goods/shipments. This is because the EAC Partner States lack common or harmonized de minimis threshold. They have varying de minimis threshold across the Partner States, which constitute major constraint to the regional trade in low value shipments. The situation has contributed to the high custom duties, hidden costs and long transit times. The situation is further inhibiting potential of e-commerce in the region.
The USAID commissioned a study through the Hub whose objective was to determine an appropriate de minimis threshold for the EAC Partner States. The specific objectives included reviewing of global best practices of de minimis regimes; examining the costs related to low or non-existent de minimis threshold for the EAC; identifying legal and regulatory reforms that the EAC will need to undertake to implement best practices; and providing recommendations on the way forward.
The study noted that the international agreements and conventions recognised the need for Countries to have de minimis threshold regimes which provide more streamlined border clearance procedures than apply to other imports and reducing the costs borne by importers and accelerate delivery of merchandise. The international bodies dealing with de minimis threshold have also pronounced themselves on the appropriate level of de minimis threshold. For instance, For instance, ICC recommended the establishment of a global baseline de minimis value of at least US$ 200. Global Express Association released a list of countries with their respective de minimis threshold. Most of the countries on the list have a threshold of 186 USD.
The study further noted that the EAC Partner States subscribe to these international agreements and conventions, therefore, they are required to specify the minimum value or minimum amount of duties and taxes below which they will not be collected. At a national level, each EAC Partner State has a varying de minimis threshold. They do not have harmonized or common de minimis threshold. The variation of the threshold is adversely affecting cross border trade for low-value goods. The effects include high custom duties, hidden costs and long transit times. It also inhibiting the potential of e-commerce in the EAC region. However, having a commercially viable and harmonized de minimis threshold is likely to have a positive impact on customs revenue through increased trade and eCommerce opportunities, higher importer compliance and allow EAC governments to focus their revenue collection efforts on the higher-yielding part of their tax bases.
The study also recalled that early this year in March 2019, the EAC Partner States agreed in the principle to a de minimis threshold of 150 USD. In order to give EAC Partner States more options for the de minimis threshold. The study of APEC was used to provide guidance to EAC Partner States on the appropriate de minimis threshold for the EAC region. The study report by APEC showed that the de minimis threshold of 200 USD has largest net economic benefits of USD 5.9 billion a year for the APEC-6, equivalent to about USD 30.3 billion for all 21 APEC members translating into 0.086% of APEC-21 GDP compared to de minimis threshold of 150 USD.
The study recommended two options for the way forward on the issue of de minimis threshold for the EAC Partner States. The 1st option was for the EAC Partner States to converge to the de minimis threshold value of 200 USD and the 2nd option was to move towards the de minimis threshold value of 150 USD which they had agreed in principle to adopt. These two options of de minimis regime will provide more streamlined border clearance procedures than apply to other imports thus reduce the costs borne by importers and accelerate delivery of merchandise, which both benefit the final consumer. It will also allow the governments to refocus their revenue collection on the higher-yielding parts of the tax base.
In addition to the above de minimis threshold, the EAC Partner States are proposing legal and regulatory reforms to improve the digital economy in the EAC region.