This paper quantifies the revenue consequences of trade reform in the East African Community (EAC) using a multi-country general-equilibrium framework calibrated to the most recent macroeconomic and trade data. Exploiting the phased implementation of the EAC Customs Union (2005–2010) and the subsequent introduction of a fourth Common External Tariff (CET) band in 2022, we estimate the static and dynamic effects of preferential tariff elimination and external tariff escalation on government revenues.

Findings on intra-EAC tariff removal:

Results indicate that intra-EAC tariff removal initially raised member-state revenues via higher import volumes on sensitive product lines, but the sequential reduction to a zero percent intra-regional tariff generated cumulative losses of US$5.3 million in Uganda alone by 2010, with similar patterns observed across partner states. These losses were partially offset by rising collections from the CET, excise duties, VAT, and withholding taxes, yet the compensation gap narrowed as duty-free intra-EAC trade expanded.

Simulations of the 2022 CET increase:

Simulations of the 2022 35% CET on edible oils show that external tariff increases can generate net trade revenues of US$206–229 million for the bloc, but gains are highly skewed toward Kenya and Tanzania, while Rwanda and Uganda experience modest or even negative revenue effects once terms-of-trade deterioration and possible retaliation are accounted for.

Sensitivity analysis:

Sensitivity analysis suggests that the elasticity of import demand, the share of intra-regional trade, and the capacity to enforce Rules of Origin critically determine the magnitude and distribution of revenue impacts.

Conclusion and policy implications:

The findings imply that trade liberalisation within the EAC is revenue-diverting in the short to medium run and underscore the need for complementary domestic revenue mobilisation strategies—particularly excise and VAT base broadening—to safeguard fiscal space while pursuing deeper regional integration.