East Africa’s growth story remains one of the continent’s most promising. The East African Community (EAC) is projected to grow faster than much of Africa, while trade volumes across the region continue to rise. Yet beneath those encouraging numbers lies a deeper structural problem: East Africa is still not trading enough with itself.
In 2025, intra-EAC trade reached US$19.3 billion, but that accounted for only 12.3% of the region’s total trade. For a bloc that has spent years promoting a Customs Union and Common Market, that figure should concern every finance minister, investor, manufacturer and trader in the region.
The contradiction is becoming harder to ignore. East African governments speak the language of integration, but many national budget measures continue to fragment the regional market. Fiscal policy, instead of enabling cross-border business, is too often creating new barriers through uncoordinated taxes, tariff exceptions and country-specific levies.
As Partner States prepare their FY2026/27 budgets, they face a defining choice: continue treating fiscal policy as a narrow revenue tool, or use it to build a predictable regional market capable of withstanding global economic shocks.
The current global environment leaves little room for policy inconsistency. High fuel and logistics costs, geopolitical tensions, currency pressures and shrinking business margins are already straining firms across East Africa.
In such conditions, businesses need regional scale and policy certainty more than ever. Yet governments continue introducing measures that increase costs for the very companies expected to drive industrialization and regional trade.
The FY2026/27 budget cycle should therefore be viewed as a test of the EAC’s seriousness about integration.
One of the clearest examples of policy drift is the growing misuse of the Common External Tariff (CET). The CET was designed to provide uniform tariff treatment across Partner States, encourage local manufacturing and support value addition. Instead, exceptions have become so widespread that the system is losing credibility.
By June 2024, nearly 2,000 tariff lines were already subject to stays of application. By FY2025/26, more than 41% of CET tariff lines were affected by stays of application and duty remissions. When exemptions become routine, the “common” tariff ceases to be common.
The consequences are significant. Manufacturers face uneven production costs across borders. Investors struggle to predict market conditions. Regional supply chains become weaker because firms cannot rely on consistent tariff treatment across Partner States. A manufacturer in one country should not have to compete against another benefiting from a completely different tariff regime on the same imported input.
If East Africa wants to industrialize collectively, tariff policy cannot remain fragmented nationally.
Partner States should therefore use the FY2026/27 budgets to restore discipline to the CET. Unilateral stays of application should be phased out, while any exceptions should be transparently justified, regionally approved and tied to clear expiry timelines.
The long-delayed regional product-availability study must also be finalized so that duty remissions are based on evidence rather than lobbying pressure. Where regional supply exists, local sourcing within the EAC should take priority over imports from outside the bloc.
But tariffs are only part of the problem.
Even where customs duties have been removed, businesses still encounter internal fiscal barriers that function like hidden borders. Differences in excise duties, VAT treatment, income-tax rules and domestic levies continue to distort competition across the region.
Particularly troubling is the growing trend of discriminatory taxation against EAC-originating goods. In several Partner States, products such as beverages, beer, cigarettes, processed foods, plastics, furniture and fish products face excise structures that disadvantage imports from neighbouring EAC countries compared to similar domestic products. Such practices directly undermine the principle of national treatment embedded in the Customs Union framework.
At the same time, charges such as Import Declaration Fees, railway development levies, infrastructure levies and industrial development taxes are still being imposed on goods traded within the EAC as though they originate from outside the region.
These measures increase transaction costs, discourage regional sourcing and weaken competitiveness. More importantly, they erode trust in the idea of a single market.
The irony is that many of these taxes and levies have already been identified as Non-Tariff Barriers scheduled for elimination. Yet instead of removing them, some governments continue extending or redesigning them under new names.
The FY2026/27 Finance Acts should reverse that trend. EAC-originating goods should be treated no differently from domestic products. Charges equivalent to import duties should be removed from intra-EAC trade. Governments should also establish a regional compliance matrix identifying discriminatory taxes and setting timelines for their elimination, backed by quarterly public reporting.
Equally important is reforming how budget decisions themselves are made.
Today, Partner States follow different consultation calendars and budget processes. Kenya, Uganda, Tanzania and Rwanda all engage stakeholders at different times and under different frameworks. While this may appear administrative, it creates serious coordination problems for regional businesses trying to assess proposals across multiple markets.
By the time regional concerns are raised through EAC platforms, many national tax measures are already politically locked in.
A functioning common market cannot be built through isolated fiscal decision-making.
The EAC should therefore adopt a harmonized pre-budget consultation framework. National treasury submissions could run from September to February, technical reviews from February to March, and parliamentary processes from March to May. Proposed tax measures should also be published early enough for meaningful stakeholder review, including trade-impact assessments and structured consultations with the private sector.
The East African Business Council and other regional business associations should have a formal role in evaluating whether proposed tax measures support or undermine regional integration before Finance Bills are finalized.
None of this means governments should abandon revenue mobilization. East African states face enormous development financing needs, from infrastructure and healthcare to education and debt servicing. But governments must also recognize that poorly coordinated fiscal policy can cost economies more than it generates.
Fragmented tax systems discourage scale, increase production costs and keep firms trapped within national markets instead of expanding regionally. In the long run, that weakens industrialization, limits competitiveness and reduces the tax base itself.
Economists have long pointed out that part of the problem stems from unhealthy competition among Partner States for foreign direct investment.
“Governments often introduce tax exemptions, preferential treatment and unilateral incentives in an attempt to outcompete neighbours for investors” Kafeero said.