The spirit of the directive seeks to tame tax evasion and undervaluation of cargo, but lived reality is driving traders out of business.
By Mumbi Mutoko
Small-scale traders and importers are feeling the weight of implementing a directive by the Kenya Revenue Authority (KRA), which has made significant tax changes on loose cargo.
According to KRA, the directive would mean duty will be applied on the value of imported goods and aims to reduce tax evasion cases through false declaration, resulting in substantial revenue losses.
Small-scale importer and trader Dennis Wambua, who spoke to Nairobi Law Monthly, says the move is causing clearance delays and financially impacting small-scale traders who rely on cargo consolidators for their imports.
“Most people who bought goods overseas from late June have not received their items. My colleagues in this industry have rented shops but have not received their goods for nearly four weeks. They are paying rent for these shops without goods to sell. Those who have received their goods have had to pay higher shipping fees. Lack of stock and high shipping fees are the biggest challenges we are currently facing,” says Wambua.
KRA says the decision to introduce the WTO General Agreement on Tariff and Trade model based on the value of goods imported through consolidation stems from the abuse of the previous government directive, which allowed importers to declare their loose cargo and pay duty at Sh200 per kilogram.
It explains that importers and consolidators should ensure that shipping documents are correctly addressed in the importer’s name. Where goods are shipped through a cargo consolidator, the importer should require the consolidator to issue them an air waybill or house bill of lading, showing the importer’s name as the ultimate consignee for their consignment. Upon the arrival of the consolidated cargo at the place of discharge, the consolidator is required to break bulk or de-consolidate the cargo and allow for individual clearance.
“KRA encourages all importers and consolidators to familiarise themselves with the applicable duty rates and to ensure that any declarations made to Customs comply with the law. KRA updates its customs systems promptly to reflect the prevailing duty rates. The latest information on duty rates can also be found in various gazette notices,” the taxman says on its website.
But the word “consolidator” may have been misused; the intention of consolidating was to help SMEs assemble cargo from origin belonging to different importers, to form one consignment from the port of supply and deconsolidated to respective importers at the destination ports.
“This has been turned into a tax evasion racket where many traders with valuable cargo are resorting to bringing them as consoles to enter not as per the transaction value but as per kilo,’’ says KRA.
It adds that it is committed to timely facilitation and cargo clearance at all discharge points and will continuously engage and collaborate with stakeholders to enhance trade facilitation.
But traders say the new taxation model will slow their businesses and that the move was ill-advised since the agency does not (even) offer traders better tax education and awareness to ensure compliance with new tax regulations.
“If it continues this way, most businesses will be closed. Large-scale traders will be able to operate, which means they’ll hike their prices to cope. If things worsen, small-scale traders will have to ship their cargo to our neighbouring countries and have them transported to Kenya,” says Wambua.
The recent shift in the tax structure by the Kenya Revenue Authority has presented significant challenges for small-scale traders and importers in the country. Clearance delays, higher shipping fees, and increased financial burdens have become major concerns for traders who rely on cargo consolidators for their imports.
While the intention behind the directive is to combat tax evasion, small-scale traders fear that the increased costs may lead to a decline in their businesses, and they may have to explore alternative routes for importing goods into Kenya. The situation also highlights the need for better tax education and awareness among traders to ensure compliance with tax regulations. (