ADDIS ABABA –The African Union (AU) for the first in its 50-year existence will fund all of its operations by collecting a small levy from the duty imposed on imports to the continent. Deputy Chairperson of the African Union Commission Erastus Mwencha on Friday. The decision directs all African Union member States to implement a 0.2 percent levy on eligible imports for the finance the African Union,” said Mwencha. He said the it was estimated that at least US$1.5 billion would be raised through the levy, which was much more than the present cost of AU operations.

“The decision will enter into operations for each member State from January 2017,” said Mwencha. Some countries such as Kenya, Rwanda, Chad and Ethiopia and Republic of Congo have already implemented the levy. The AU has in the past been reliant on the European Union and other donors to fund its operations, because only five African countries, including Libya, were contributing money for such purposes. The move is expected to provide reliable and predictable funding forissues like operations, and funding continental peace and security missions.

Current and outgoing AU Chairperson Dlamini-Zuma commissioned an investigation into ways for Africa to increase its financial independence after arriving at her new post in Addis Ababa in 2012 after discovering how much of the AU’s work relied on foreign donors. The AU had proposed a formula for determining the contributions from each country, according to each countries financial muscle. Nkoana-Mashabane added that the AU believed it would be able to fund all its own programmes if it was not losing so much money through illicit outflows of capital from the continent. It’s estimated that 50 billion $ illicitly leaves Africa every year. This is not only from explicit criminal activity but also from legal and shady accounting practises by multi-national corporations. These include registering their businesses in off-shore tax havens rather than in the African countries where they actually made their profits.

WHY INTRODUCE A LEVY ?

The continued and successful implementation of the Union’s programmes require adequate and predictable, sustainable funding. However under existing arrangements, the Union’s budget continues to be underfunded by both the Member States and Development Partners.
On average, 67 percent 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.

HOW WAS THE 0.2% ON IMPORTS ARRIVED AT?

In the search for a viable, equitable, sustainable and predictable source of financing the union, the AUC working in close collaboration with the UNECA 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.
After a careful evaluation of the potential of all the options, the 0.2% 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 AU could expect to receive funding on time once the scheme sets in.

THE APPLICATION OF THE LEVY

The taxable base of the AU import levy will be the value of eligible goods originating from a non-Member State imported into the territory of a Member State to be consumed in the Member State. The Revenue collected under the import levy is then remitted in accordance with each Member State’s approved assessed contribution including the Peace Fund.
Any surplus collected by Member States after the fulfillment of obligations under the assessed contribution are to be retained by the State while any deficits between the assessed contribution and revenues collected under AU import levy by a Member State shall be covered by the Member State
The Revenue collected under the import levy is then remitted in accordance with each Member State’s approved assessed contribution including the Peace Fund.

The Peace fund has been allocated three hundred and twenty five million US dollars ($325,000,000) in 2017 expected to incrementally rise to Four Hundred Million US dollars ($400,000,000) in 2020. The Peace Fund will be distributed equally among the five AU Regions as defined in the relevant instruments

Here is an illustration of how the 0.2% levy works: for instance
Take Country X assessed contribution per year as 1$.
From the 0.2% levy, Country X collects 5$ per year.
It’s from the 5$ that the country deducts the 1$ and remits to the African Union.
Also, from the 5$, the country is also obligated to deduct the amount levied on it, by the region, to contribute to the 65 Million dollars per region (annually) to the Peace Fund contribution.
A key aspect of the 0.2% levy is that any surplus collected by Member States after the fulfillment of obligations under the assessed contribution are to be retained by the State for their own development needs while any deficits between the assessed contribution and revenues collected under AU import levy by a Member State shall be covered by the Member State

WHAT CONSTITUTES ELIGIBLE GOODS?

The AU import levy will apply to the Cost Insurance and Freight (CIF) value at the port of disembarkation for imports arriving by sea and road and the Customs value at the airport of disembarkation for goods arriving by air. The criteria for exemption are contained in the draft guidelines on AU import levy adopted by the committee of 10 finance ministers and sent to all member states. In essence, the eligible goods at this point shall be determined by member states in line with national priorities
And while the taxable base targets the value of eligible goods originating from a non-Member State imported into the territory of a Member State, a few exemptions are made to the following:

1. Goods originating from outside the territory of a Member State for home consumption in a Member State and re-exported to another Member State;
2. Goods received as Aid, gifts and non-repayable grants by a State or by legal entities constituted under public law and destined for charitable works recognized as being for the common good;
3. Goods originating from non-Member States, imported as part of financing agreements with foreign partners, subject to a clause expressly exempting the said goods from any fiscal or para-fiscal levy;
4. Goods imported by enterprises before the entry into operations of this Guidelines;
5. Goods on which the AU import levy has been previously paid.

WHAT IS FINANCING OF THE UNION

Financing of the Union is a historic decision adopted by Heads of State and Government (HOSG) in a “Retreat on Financing of the Union” during the 27th African Union Summit held in Kigali, Rwanda in July 2016. The Decision directs all African Union Member States to implement a 0.2% levy on eligible imports for to finance the African Union.
The Retreat was attended by over 30 Heads of State and Government, Ministers of Foreign Affairs, Ministers of Finance and other representatives of Member States, the High Representative on the Peace Fund Dr. Donald Kaberuka presented comprehensive proposals on financing the Union including the Peace Fund.

The purpose of the decision is:
1. To provide reliable and predictable funding for continental peace and security though the Peace Fund;
2. To provide an equitable and predictable source of financing for the Union;
3. To reduce dependency on partner funds for implementation of continental development and integration programs; and
4. To relieve the pressure on national treasuries with respect to meeting national obligations for payment of assessed contributions of the Union
The decision will enter into operations for each Member States from January 2017. The above notwithstanding it is important to note that some countries have already initiated action to implement. These include Kenya, Rwanda, Chad and Ethiopia and Republic of Congo.

THE BACKGROUND OF THE DECISION

Self-reliance was the core of Pan-African values of the Organization of African Unity (OAU). Following the transition to the AU, at the turn of the millennium, several milestones have been achieved towards attaining a reliable effective and predictable financing mechanism for the Union. Over the period, several decisions have been taken by the Assembly leading to the appointment of a High Level Panel on Alternative Sources of Financing headed by former President Obasanjo of Nigeria. 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 (CAMEF) held in Washington in 2014. These recommendations were endorsed in subsequent decisions of the assembly.

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.
In January 2016, the 26th Ordinary Session of the Assembly of Heads of State and Government in Addis Ababa, once again deliberated on the issue of financing, and in its decision on ‘The Scale of Assessment and Implementation of Alternative Sources of Financing the African Union and further requested that:

1. 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.
2. The AU Commission to 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.
Finally, 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% levy on eligible imports for to finance the African Union.

THE UTILIZATION OF THE LEVY

With the immediate implementation of the AU import levy, the levy is to be derived from 0.2 percent of the value of the eligible goods imported into a Member State from a non-Member State (therein stated as from outside the continent).
The levy is applicable and is to be instituted in 2017 to finance 100% Operational Budget, 75% Program Budget and 25% Budget of the Peace Support Operations of the African Union as well as any other expenditure of the Union that may be determined by the Assembly.

 African Union

Africa Team