Arbitrary Custom Uplifts by KRA should stop



It would be a very happy new year for both manufacturers and consumers but for the Kenya Revenue Authority. Since mid last year, Brent crude oil and US oil prices have been on a downward spiral, falling by more than 50 percent. The price fall follows the discovery and exploitation of shale oil in the USA which has led to less demand from the US and over supply from Organisation of Petroleum Exporting Countries (OPEC). To counteract this new development, Europe is now facing the option of quantitative easing to fight deflation which tends to discourage investment and expenditure due to a contraction in money supply in the economy. Quantitative easing pumps money into the economy to encourage banks to make more loans and jump start investments.

Both manufacturers and consumers should be reaping from the plummeting oil prices. While our fuel prices and locally manufactured products have gone down, they can go down much further. Figures from the Kenya National Bureau of Statistics (KNBS) show that the Producer Price Index (PPI) decreased by 1.28 percent in the last quarter of 2014. The drop was attributed to the lower electricity costs after a fuel cost adjustment from Sh3.47 to Sh2.87 per KWh and a drop in the cost of manufacturing food products, coke and refined petroleum products. KRA does not seem to have registered as yet that globally, the cost of raw materials has come down and Importers are now paying more for goods due to customs value uplifts.

Schedule 4 of the East African Community Management Act (EACMA) 2012 which domesticates the WTO Agreement on Customs Valuation, equates the customs value of imported goods to the transaction value and provides a solution in case the import value cannot be determined as follows: “Where the cost of the goods cannot be determined, the cost of similar or identical goods exported from a Partner State or at about the same time shall apply.”

This is not what is happening at our borders. In flagrant disregard for the law, KRA is valuing goods even higher than the transaction prices. Let me give a hypothetical example for illustration purposes. A consignment of similar goods comes into the port of Mombasa. The first batch is valued at Sh10 per unit, a cost similar to last years prices. The consignment is allowed entry without any problems. The second batch which comes from a different supplier who has lowered his prices, is valued at Sh9 and KRA revalues it to Sh11. This practice goes against the EACMA 2012 stipulations which asks customs to revalue it at Sh10 but only if they cannot determine the value of the goods. Manufacturers are overpaying duty.

Prices uplifts were on the increase last month leading to suspicions of rent seeking. If KRA was relying on the Internet to peg their prices, then they are doing us a disservice because those are not the prices for sale to the East African region. Usually, internet prices already include taxes. In some cases, they are the prices for goods destined for foreign markets and specifications for such products are usually very different from those of products destined for Kenya or the region. It is for this reason that the paragraphs in the fourth schedule of the EACMA is very specific that such goods should be “sold for export to Kenya.” A reasonable valuation should take into account these considerations.

Granted, there are fraudsters out to take advantage of the situation and KRA has to ensure that prices are indeed falling and that this is not under-invoicing. Still, genuine manufacturers want to benefit from the reduction of crude oil prices by paying duty on the prevailing customs value not on the perceived customs value by KRA.

Importers have a right to explanation on any uplift by a customs authority. And even as these cases are being resolved at customs, they have a right to clear their goods with security, under bond, bank guarantee or a surety to safeguard the duty payable under this value. In the meantime, the Consumer Price Index (CPI) in December was up by 0.43 per cent. While many other factors led to an increase, if KRA continues with uplifts, consumer goods are not going to get cheaper. Let us work towards ensuring the payment of the right amount of duty for better consumer prices.

(The writer is the chief executive of Kenya Association of Manufacturers and can be reached on [email protected])

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