Kenya risks retaliatory trade measures if tax laws clash with EAC framework - PS Karugu

The State Department for East African Community (EAC) Affairs has urged MPs to amend Kenya’s tax laws to align with regional frameworks, warning that provisions in the proposed Finance Bill, 2026, could trigger retaliatory trade measures from partner states and threaten the country’s access to a key export market.

Appearing before the National Assembly’s Departmental Committee on Finance and National Planning, Principal Secretary for EAC Affairs Dr Caroline Karugu cautioned that some provisions in the Bill risk undermining regional treaties and reversing gains made under the East African Community integration agenda.

Dr Karugu told MPs that regional law takes precedence over national legislation in matters of implementation. “Article 8(4) of the Treaty for the establishment of the EAC explicitly provides that Community laws take precedence over national laws on matters of implementation,” she said.

She warned that Kenya’s continued approach could expose the country to retaliatory action from trading partners. “The EAC market accounts for more than 29 per cent of Kenya’s total annual exports. Partner states are reportedly considering retaliatory measures if Kenya continues to impose discriminatory duties,” she said.

Dr Karugu further cautioned that failure to align tax classifications could distort trade flows within the region. “Without the reclassification, Kenyan importers face excise exposure that incentivises routing cargo through Tanzania instead. Kenya will be the country that loses because we are the greatest beneficiaries of the East African Community,” she told the committee.

A key concern raised during the meeting was the classification of goods traded within the EAC, where Kenya treats such goods as imports under its Excise Duty Act, while the regional law classifies them as transfers.

Committee members, led by Chairperson Kuria Kimani, acknowledged the concerns but questioned whether Kenya’s openness within the EAC has been matched by similar commitments from partner states.

“Recently, we had an engagement with the Kenya Association of Manufacturers on the Finance Bill, and they noted that Kenya has been too lenient with our EAC partners without reciprocation from them. There’s also the issue of stay applications, which remains unresolved,” he noted.

The Committee also discussed the need to eliminate non-tariff barriers and improve coordination among officials, facilitating the free movement of goods and people across the region.

MPs resolved to continue consultations on the proposed amendments and undertake joint visits to border points to assess challenges affecting regional trade and integration.