EA seeks common warehouse rules to plug revenue leakages

The Treasuries of the East African Community states are seeking common rules to tighten supervision of customs warehouses and stem tax evasion.

Treasury cabinet secretary Henry Rotich said there were differences in the warehousing regimes in the region that make it difficult to enforce best practices, thereby leading to revenue leakages.

The issue had come up in the discussion between the Treasury and the International Monetary Fund (IMF) on the administration of taxes. The IMF was in Kenya between December 2 to 16 to review economic developments.

“We are looking at the warehousing regimes where the countries in the region are going to agree on a unified regime to stop the diversion of goods at ports of entry,” said Mr Rotich.

Experts say while Kenya has a more rigorous and sophisticated warehousing regime that makes it difficult to evade taxes, it is not the case in the other countries. This is largely due to lack of regular inspections of the warehouses and capacity to investigate suspected cases of diversion.

The CS said proper declaration of valuation and verification to ensure the right tax base was one of the key areas of focus in the customs reforms.

The Kenya Revenue Authority has installed a new and improved customs management system — enabling clearing of goods before they arrive at the Mombasa port —to replace the Simba system which has been in place since 2005.

READ: KRA in plans to instal Sh1bn customs system

Even in Kenya some unscrupulous businesspeople still take advantage of the fact that the tax authorities do not have adequate capacity to pursue them when they divert goods into the local market.

“The warehousing regime on the Kenyan side is really tight. The legal and administrative system in place is well secured and implemented. But we have issues in the neighbouring countries because, in Uganda for example, it can take years before the revenue authority officials inspect a warehouse,” said Steve Okoth, tax manager at tax and audit firm RSM Kenya.

Mr Okoth said even for Kenya, there was still a group or a cartel that colluded with revenue officers to beat the rigorous system already in place.

“There is only one problem with the Kenyan customs system: some unscrupulous businesspeople sometimes involving revenue officers can bypass it. It is possible to tell who they are but it can take months investigating and collecting evidence because you will find there may be more than a 1,000 cases,” said Mr Okoth.

The cases may be many but may only involve far fewer people who own the different entities, he added.

In the other countries in the region, Mr Okoth said, capacity to implement good warehousing practices is so limited that goods get routinely diverted.

“In Uganda, cheating by importers is terrible. There is rampant corruption and there is no sufficient capacity to monitor the operations of the warehouses. The guys are difficult to pin down because you are obligated to operate on strict proof,” said Mr Okoth.

In Tanzania, the customs practices have recently improved, and are ahead of those in Uganda, Mr Okoth said.

“The Tanzanian Revenue Authority is becoming aggressive in enforcing compliance but is still behind Kenya. The important thing is to put people to stiffer penalties to discourage cheats,” said Mr Okoth.