AfCFTA tariff revenue losses: a risk for introducing new export and trade taxes in Africa?

One of the key aspects of the AfCFTA is that African countries that have signed and ratified this Agreement will phase out tariffs on 97% of products imported from other African countries (except Eritrea, that never signed the agreement). The progressive reduction - until abolition - of customs duties on such goods will make them less expensive and therefore more attractive for African consumers. This is supposed to lead to an increase in their demand which in turn will stimulate growth in trade among African countries. However, the AfCFTA does not eliminates other internal taxes that are levied by African countries on imports. This is the case of the VAT and excises for instance. Therefore, if on one hand the AfCFTA will cause African countries to lose revenue from customs duties, on the other hand, revenue from domestic taxes will increase because the latter will hit larger volumes of products entering through their borders. But what about export duties? Will they also be eliminated by the AfCFTA?

The answer is no. Article 10, para. 1 of the AfCFTA Agreement (Protocol on trade in goods) states that “State Parties may regulate export duties or charges having equivalent effect on goods originating from their territories”. Here, the term “regulate” is imprecise and ambiguous, but para. 3 of the same article gives a clarification by stipulating that a State Party that “introduces” export duties or taxes on, or in connection with, the exportation of goods shall notify the Secretariat 90 days from the introduction of the said export duties or taxes.

The introduction of export duties or similar taxes having equivalent effect is therefore possible for African States within the AfCFTA framework, on condition that (para. 2, art 10) they “apply to goods exported to all destinations on a non-discriminatory basis”, a provision of not easy interpretation.

A recent report from the Overseas Development Institute (ODI), an independent think tank that conducts research on trade , development and investment matters, analyses these dynamics in relation to Rwanda. The report argues that the overall increase in imports from intra-Africa trade under the AfCFTA will partially offset the reduction of tariff revenue that the Rwandan government will experience. The study calculates that, in addition to the increase in VAT revenue, excise taxes will generate a flow into the country of approximately $364,000. Such increases, however, will not be sufficient to compensate the tariff losses caused by the implementation of the agreement. Hence, the study recommends Rwanda to exclude gold from tariff liberalization, noting that the country imports large quantities of this mineral from Cameroon, Burkina Faso, and South Africa (for a total of $41 million). Only the elimination of customs duties on gold imports from these 3 countries would therefore cause the country a tariff revenue fall of 15.3%.

A 2017 study published in the Seoul Journal of Economic Integration noted that African countries, when trading with each other, generally apply also export taxes and other trade taxes different from customs duties on the movement of goods. The study argues that these levies hinder and strongly discourage intra-African trade, particularly in agricultural products, which are the products most affected.

In light of the findings of the ODI study, the question that arises therefore becomes: will African countries resist the temptation to introduce new export and other trade taxes to compensate for AfCFTA losses?