Relief for ‘mitumba’ traders as duty slashed

Finance minister Njeru Githae ordered the taxman to revert to the previous system of levying duty on second-hand clothes.

Early this year, the Kenya Revenue Authority (KRA) raised tax on the clothes — popularly known as mitumba — to Sh1.9 million for a 20-foot container from Sh1.1 million.

The move sparked protest from traders who said the extra Sh800 million had thinned profit margins in the sector as higher prices slowed down demand for the clothes.

READ: Dealers in used clothes brace for hard times as taxman raises duty

Mr Githae said since the new tax was implemented imports of the second hand clothes have dropped significantly, threatening millions of jobs in the supply and distribution chain.

“In order to prevent further loss of business and employment that supports millions of our people, I have instructed KRA to immediately revert to the initial valuation method,” Mr Githae said.

The mitumba dealers have been in conflict with the local textile industry, with the latter rooting for increased taxation of used clothes imports to protect factory jobs. Most of the textile firms are based in the country’s export processing zones (EPZs) that rely mainly on the export market to absorb their production.

But mitumba remain popular among the poor and lower middle classes because of their relatively cheap prices. A new shirt in Nairobi’s central business district, for instance, can cost from Sh1,000 up to Sh9,000 while used shirts are priced from as low as Sh100.

The popularity of the second-hand clothes has been linked to the collapse of a number of textile firms and the underdevelopment of the country’s cotton industry.

KRA had defended the new duty, arguing that the informal mitumba business is highly undervalued and therefore leads to large revenue losses.

The Commissioner of Customs Wambui Namu said that the new tax rate was based on a market survey that found mitumbas to be undervalued compared to prevailing market prices.

She said at a meeting held with Gikomba wholesalers –the biggest importers and wholesalers in the industry-- on December 1, 2011, that consensus was reached on customs valuation and a benchmark value agreed on.

Mitumba traders however said the higher tax rate compounded their costs, including transport, freight, and fees to the Kenya Bureau of Standards, a move that raised the cost of importing one 20-foot container to above Sh2.5 million.