Kenya seeks reduction in Pakistan tea import duty

Kenya will step up lobbying for a review of the import duty charged on tea by Pakistan to help curb smuggling through the neighbouring Afghanistan.

“There is very little we can do in terms of regulating what volume goes into Afghanistan because its an open market system and everyone has a right to buy from anyone but we have resolved to continue lobbying Pakistan to lower the import duty on tea that enters its market. This will deny smugglers the incentive to engage in the malpractice,” Tea Board of Kenya (TBK) managing director, Sicily Kariuki told Business Daily.

Pakistan currently charges 10 per cent import duty, alongside a 15 per cent sales tax and an additional 10 per cent value-added tax and another two per cent income tax on imported tea.

Smugglers charge between 15-20 per cent overall duty on their consignments.

Only last month, Kenya raised the red flag over a sudden surge in Afghanistan tea imports with market analyst linking the trend to a syndicate in which suspected billionaire terrorists in the war torn country were seeking to “hide” their dirty money in the wake of a US-led crackdown on opium growing.

For instance official data released in November showed that Kenyan tea exports to Afghanistan grew by the largest margin of 30 per cent in the nine months to September even as sales dropped in other traditional export markets such as Egypt, the UK and Pakistan by 18, seven and 13 per cent respectively.

Afghanistan imports premium tea from Kenya for blending which it then passes on to Pakistan as Kenyan tea.

The leap saw Afghanistan take up 22 million kilogrammes of tea, pushing the country’s green tea imports to more than double the domestic consumption demand.

“Such improved sales are good for us but we are concerned about the possible side effects in the long term. Such smuggling comes alongside adulteration of the original product that could see us lose customers after a while because nobody would want compromised quality,” Mrs Kariuki said.

She said TBK was already engaging the Pakistani government, through the Kenyan embassy in Islamabad to possibly review the duty charged on tea imports.

“It is about killing the incentive for the smugglers to continue doing such dirty business,” the MD said in an interview

Exactly a month before TBK raised the red flag, the Pakistani Tea Association had sounded the alarm, claiming that close to 70 million kilogrammes of the beverage was illegally smuggled into the country every month through the Afghan Transit Trade Agreement (ATTA) that offers concessionary trade terms.

The ATTA was initiated in 1965 as part of a deal by Pakistan to help its landlocked neighbour open up to international trade.

Tea was however only added to the list of products covered under the programme in 2004, effectively opening up avenues for smugglers.

“The question of the dips in the volume of exports to the Pakistani market is further compounded by the recently signed free trade area arrangement with several of its neighbours but we shall keep pushing our products to its market on the strength of quality,” Mrs Kariuki said.

Pakistan is currently in an FTA arrangement known as the South Asian Association for Regional Cooperation (SAARC) under which dealing involve the free movement of goods between signatory countries through the elimination of tariffs, quasi-tarrifs and non-tariff restrictions on the movement of goods, and any other equivalent measures.

Some of the members in this FTA such as India and Sri Lanka directly rival Kenya in tea production, explaining the waning interest in shipments from Kenya.

The Kenyan-Pakistan trade ties are critical because the Asian nation traditionally takes a bulk of Kenya’s tea exports while a sizeable volume of its rice exports finds its way into the East African Community Market (EAC).

Rice imports

Only in June, Kenya and other EAC members handed Pakistan a major concession over tariffs charged on its rice imports.

For many years, Kenya and other EAC nations have pegged the common external tariff (CET) on rice imports at 75 per and an extra preferential 35 per cent import duty in line with the provisions of the harmonised community description and coding system.

But this arrangement was due for review upwards on June 30, 2009.

Kenya produces only about a third of its annual rice demand of 250,000 tonnes with a bulk of the shipments to fill the deficit coming from Pakistan alone.