The industrialists have told EAC secretary Phyllis Kandie (left) that paying full duty defeats the essence of the common market. FILE
What you need to know:
Under new regulations ratified by the EAC, manufacturers using imported input can only export outside EAC or pay full duty as opposed to the rules of origin scheme (demanding at least 35 per cent value addition) where tax is paid on imported raw materials.
The government says the EAC decision to restrict duty remission goods to exports outside EAC borders was informed by logistical issues.
KAM has now recommended the suspension of article 25 of the East African Protocol governing duty remission for imported stuff to avoid the chaos caused by what it says is irregular application.
Manufacturers are fighting to save the Sh114 billion regional export business as Ugandan and Tanzania increasingly charge full duty on imports from Kenya.
The arbitrary protectionist measures are undermining the East African Common Market forcing the Kenya Association of Manufacturers to seek an urgent meeting with the Treasury and the Trade ministry.
Kenya Association of Manufacturers (KAM) officials told Business Daily that 95 per cent of the companies under its wings had been affected. The lobby brings together 750 manufacturers classified under 14 sectors.
In some cases, Kenyan companies exporting under the duty remission scheme— where companies are allowed to import inputs without paying full tax — are facing demands of backdated taxes of up to five years.
Under new regulations ratified by the EAC that KAM wants suspended, manufacturers using imported input can only export outside EAC or pay full duty as opposed to the rules of origin scheme (demanding at least 35 per cent value addition) where tax is paid on imported raw materials.
KAM says the countries have extended this treatment to even minimal imported input:
“In some cases, producers use minimal imported content on remission and are still subjected to full payment of duty on the final product. We believe that the content imported under remission should be put into consideration when determining when duty is payable on the finished product.”
But the government says the EAC decision to restrict duty remission goods to exports outside EAC borders — with only 20 per cent allowed into the block —was informed by logistical issues. Director of economic affairs Richard Sindiga says even the minimal input has major implications.
“A firm which wants to sell in East Africa has to pay full duty because it is administratively expensive for countries to audit factories for compliance on input,” said Mr Sindiga.
He adds that firms exporting under the rules of origin scheme have not been affected, which some manufacturers contest. The official said EAC is carrying out a study on duty remission that he urges KAM to participate in.
In a letter to Cabinet secretary Ministry of EAC Affairs, Commerce and Tourism Phillys Kandie, the manufacturers complain that paying full duty defeats the point of the common market.
KAM has now recommended the suspension of article 25 of the East African Protocol governing duty remission for imported stuff to avoid the chaos caused by what it says is irregular application.
“Exporters under the scheme are now paying full duties as per the CET (common external tariff) in accordance with Article 25 of the Protocol on the establishment of the EAC Customs Union. This has led to loss of market for Kenyan exporters whose main market is the EAC,” the lobby said in a letter to the minister ahead of their recent encounter.
Sources in the manufacturing sector said the application of the non-tariff barriers (NTB) to goods entering the two markets had amounted to a blockade with latest victims being exporters of airtime scratch cards to Tanzania.
“The NTBs affect almost all members from Bidco to everyone as the two countries are our largest markets,” said KAM deputy CEO and chief operating officer Kennedy Mohochi.
Kenya exported goods worth Sh67 billion to Uganda last year with Tanzania buying goods valued at Sh46 billion out of the Sh250 billion exported to the continent.
And it is not only duty remission manufacturers who are complaining.
“We are unable to export but their goods are coming in. The government is always mum on the issue while we are exporting jobs to Uganda and Tanzania,” said Devki Group chief Narendra Raval who added Kenya has lost the Uganda steel market it has dominated over the 10 per cent surcharge.
Uganda firms are in the meanwhile pumping steel products into western Kenya after processing duty free billets from South Africa and Russia, besides under-declaring weight to pay less VAT, he claimed. As a result imported steel products in the affected region are costing almost half local products whose market has fallen 40 per cent.
Uganda has been more receptive to imports but this has apparently changed after its sugar exports were early this year blocked by Kenya Revenue Authority (KRA) from entering Kenya over suspicion of dumping.
Uganda, a sugar deficit country, had allowed its importers leeway to import from outside EAC with traders later seeking to sell the commodity outside the country.
KRA tested sugar purported to be from Uganda and later concluded it was not from its millers, a situation that is thought to have resulted in bad blood.
“The sugar samples drawn had different chemical and physical characteristics with sugar samples drawn from production lines of both Sugar Corporation of Uganda Ltd and Kakira Sugar Ltd and samples drawn from Busia Sugar Station,” said a report filed by Kenya at the EAC Secretariat dated May 2013.
Interestingly, sugar in Uganda just like in Kenya is a highly politicised commodity, a fact that can easily explains the reported backlash.
Only recently, a Ugandan politician was embroiled in a saga in Kenya where a firm had imported sugar branded in Mumias Sugar Company corporate colours.
According to Mr Mohochi, even in cases where the trading partners have visited Kenyan factories to confirm EAC inputs, they have still barred companies from enjoying the preferential trade.
“Tanzania has gone to factories like General Motors East Africa and agreed to admit goods but on the border they create non-tariff barriers,” he said.
A manufacturer who did not wish to be identified said for Tanzania, the largest market by population in EAC, such behaviour was the norm.
The scratch-card manufacturer noted that the country had extended the same tariff barriers to Uganda besides Kenyan firms. Kenyan firms nevertheless tend to be the biggest losers as the country has the largest manufacturing base in East Africa.
The hiccups in trade come as the EAC plans the overly ambitious monetary union which could remain a dream as long as free trade is not working.
