Importers of consolidated cargo will now be required to pay taxes based on transaction value, in a new directive by Kenya Revenue Authority (KRA).
This is a shift from the previous model where importers declared the loose cargo and paid duty at Sh200 per kilogramme.
According to KRA, the decision to move to the WTO General Agreement on Tariff and Trade model based on transaction value follows abuse of the initial government directive that was aimed at easing costs for small importers.
The taxman now says the initial arrangement has been abused by traders, where undervaluation of cargo and tax evasion had become a norm, costing the taxman billions in unpaid potential revenues.
A section of Kenya International Freight and Warehousing Association (KIFWA) directors specialising on conventional cargo clearance (cargo declared based on Transaction value), had also decried on unfair competition from those clearing consolidated cargo citing gross undervaluation, clearing consignments requiring permits among others.
“It is true, there have been tax loopholes,” Kifwa national chairman Roy Mwanthi told the Star on Friday.
In a statement, KRA said there has been massive misuse of the word “consolidator” whose intention was to help SMEs assemble cargo from origin belonging to different importers, to form one consignment from port of supply, and deconsolidated to respective importers at the ports of destination.
“This has been turned into a tax evasion racket where many traders with valuable cargo resorting to bring them as console to entered not as per the the transaction value but as per the Kg,” a statement seen by the Star reads in part.
Consolidators are said to have been avoiding to deconsolidate the cargo once they arrive in the countrynas per the respective importers, but declare them as one consignment using one KRA PIN.
Some Importers of restricted items like pharmaceuticals, medical devices and excisable goods such expensive whiskies, among other valuable consignments, have resorted to hide them in the consignments and bring them into the country without import permits, hence jeopardizing the life and safety of consumers.
Many of these importers bringing their goods through consolidation and whose PINs have not been used to declare their imports, KRA notes ends up having many hanging VAT obligations in their iTax PINs, and which cannot be canceled with the respective sales VAT.
KRA has however affirmed its support to consolidation of cargo as per the law on carriage from country of supply, but once within the Kenyan ports of entry, they must be deconsolidated and declared as per the law on Transaction Value and not on weight as has been the usual norm.
The new directive takes effect in all ports of entry, Eldoret included and is geared to ensure fairness, equity and effectiveness to all taxpayers, KRA notes.
Imported consolidated cargo through the Port of Mombasa and destined for Nairobi has since 2021 been moved by the SGR and cleared at the Kenya Railways Corporation Transit Shed.
This is at the gazetted ‘Boma Line shed’, launched by former President Uhuru Kenyatta in 2020.
The shed has been serving more than 7,500 small-scale traders in Nairobi and its environs , making it easier to collect their goods.
Small traders have traditionally consolidated cargo where an individual is not able to fill a container with their own goods.
In this type of transport, assorted cargo is packed in one container for shipment, with each trader collecting their goods at the end destination, where the container is stripped or de-consolidated.
Food, personal care products, electronics, clothing, home fittings and furnitures constitute most of the consolidated cargo coming into Kenya. China is the main source.
Cargo designated for other parts of the country is de-consolidated at other designated facilities, with ICDs at Nairobi and Naivasha playing a key role.
The small traders have been paying $1000, about Sh127,800 at current exchange rate, charged as container deposits, which had subsequently reduce the cost of doing business.